Russia shipping first diesel cargo to US this week after sanctions waiver

Russia is set to dispatch its first diesel tanker to the US on Oct. 22 after the Trump administration issued sweeping sanctions waivers aimed at reopening trade flows, according to Deputy Prime Minister Alexander Novak.

The first tanker, which has a displacement of some 40,000 mt, making it medium-range in scale, will depart from Russia's Baltic coastline, Novak told local media, adding that subsequent batches will follow later. It will be the first shipment of its kind to leave for the US since January 2022, before the US first sanctioned Russian energy flows.

Historically, the world's second-largest exporter of seaborne diesel, Russia still faces restrictions on its capacity due to Ukrainian attacks on its refineries, which have been a focal point for targeted offensives. However, the country has taken steps to partly relax a diesel export ban intended to conserve its domestic supply, in a concession to Trump for easing sanctions.

In his comments to national press, Novak said Russia is not yet restoring its diesel exports in full, but will "within the abilities of [its] refineries." Toward the end of the year, Russia can restore its full diesel export volumes, and broaden its shipments to other countries, he said.

The deputy prime minister said earlier this week that Russia typically consumes 3.5 - 4 million metric tons/month diesel and exports 3.5 million mt/month, a figure he said the country can reach again by the year-end. Novak previously said that Russia is ready to supply 300,000 mt of diesel to the US in October, and a further 500,000 mt in November.

According to S&P Global Commodities at Sea data, the country has shipped around 400,000 mt of diesel internationally to date in October, with most of it traveling to Egypt, Morocco, Turkey and Brazil. In the week following the US announcement, exports more than doubled, Platts, part of S&P Global, reported previously.

Based on the latest prewar data, Russia produced around 7.5 million mt/month of diesel, although repeated hits to its refining sector have hamstrung production. In the lead-up to his authorization of Russian diesel imports, Trump repeatedly blamed Ukraine's military tactics for high diesel prices — a key policy concern for Trump ahead of the US midterm elections.

The US Congress banned Russian energy imports with its Ending Importation of Russian Oil Act in April 2022 in response to the country's full-scale invasion of Ukraine. Prior to the conflict, most of Russia's diesel went to Europe, while shipments to the US were only nominal at 100,000 - 200,000 mt/month. In contrast, the US has typically relied on Northwest Europe, Canada and South Korea as lead suppliers of foreign diesel.

Price focus

Officials from the White House and Moscow have said the move will ease pressure on global markets, which continue to face prices close to record highs due to the Middle East conflict and loss of Russian supply. Russia's President Vladimir Putin said at a meeting with US envoy Steve Witkoff Oct. 21 that after the announcement of new exports to the US, prices fell by 5-6% on the international market, according to the transcripts of the meeting published on the Kremlin website.

Putin also confirmed that Russia is getting several tankers ready to leave and the first tanker will leave "in two-three days, 40,000 mt" with other tankers following thereafter. "The key now is to ensure the financial side of things is in place so that everything functions as intended," he added.

However, traders and commentators have noted that the volumes under discussion represent just a small fraction of US import needs, and could struggle to move the needle on international prices.

"The amount of diesel Russia can provide would be a drop in the bucket compared to global demand," said Masha Kotkin, a fellow at the Center for Strategic and International Studies. "If you are asking about US diesel prices, I don't think it's going to make a difference. It is not very much in the scheme of things," she said.

Despite intense focus from the White House on bringing down costs, distillate benchmarks have continued to hover around record levels. ICE Low Sulfur Gasoil futures settled at $1,449.5/mt on Oct. 20, up from $1,420.75/mt on Oct. 9 and close to September's all-time high of $1,478.25/mt.