US-Russia Diesel Deal

Persistent rises in diesel prices in the US and their negative impact on the upcoming elections ultimately compelled President Donald Trump to extend a helping hand to Russian President Vladimir Putin.

Ambassador Arjan-International Group: After a 90-minute phone conversation with Putin, Trump announced that the two countries have reached an agreement on the supply of Russian diesel to the American and global markets. Trump wrote on the Social Truth platform that Russia will immediately supply more than 300,000 tons of diesel, then another 500,000 tons in November, and another million tons after that. Trump also added that due to the condition of the damaged Russian diesel refineries, another 3 million tons may be added to these figures in the short term, bringing the total Russian diesel exports to around 4.8 million tons.

By issuing a license, the US Treasury Department temporarily suspended the sanctions related to the sale, delivery, unloading, and import of diesel fuel of Russian origin until April 7, 2027. This agreement was announced in a situation where the global energy market has faced a deep crisis. The Ukraine war and extensive Western sanctions against Russia's energy exports, along with repeated Ukrainian drone attacks on Russian refineries from 2024 onwards, have severely limited Russia's diesel production and export capacity.

The International Energy Agency has estimated that Russia's diesel production has decreased by nearly 30%. For this reason, Russia had extended the ban on diesel exports until the end of October to meet domestic needs. At the same time, the consequences of the American and Israeli attack on Iran, which led to the closure of the Strait of Hormuz, aggravated the global shortage of diesel and brought the daily market deficit to about 1 to 2 million barrels. In the United States, the price of diesel reached about 6.28 dollars per gallon, which shows an increase of about 70-71% compared to the beginning of the year, and has put a heavy pressure on farmers, truck drivers, ranchers and the supply chain of goods in this country.

This price increase has become one of the main political challenges for the Republican Party and the Trump administration in the run-up to the mid-term congressional elections on November 3rd. For this reason, in the end, the President of the United States saw the solution in extending a helping hand to a country that had signed new sanctions against it a few weeks before. Of course, there has been a serious disagreement over the impact of the US-Russia diesel agreement on the current world energy crisis

Proponents of this agreement, including US government officials, believe that increasing the supply of diesel can take the pressure off the prices, break the negative expectations of the market and contribute to the relative stability of the prices. Diesel plays a vital role in road transport, agriculture, heating and industries, and its price reduction can curb inflation and lower production costs. For Russia, this agreement creates an opportunity to earn more foreign exchange income, get rid of export restrictions in this area, and show its flexibility in relations with America.

However, most energy analysts have serious doubts about the lasting and significant impact of Trump's deal with Putin on diesel exports from Russia. The volume announced in this agreement is considered insignificant compared to the market's needs. The daily consumption of the US transportation sector is about 2.94 million barrels of diesel, and 300,000 tons (equivalent to about 2.25 million barrels) covers less than one day's needs of this sector. Subsequent shipments are also on the scale of several days, and even a total of 4.8 million tons will at best only cover part of the global deficit. Before the Ukrainian drone attacks, Russia used to export about 100,000 tons of diesel per day, but the current capacity of Russian refineries is currently limited.

Operational problems such as the condition of the oil tanker fleet under Russian sanctions, the need to repair the country's damaged refineries, and the possibility of moving cargo destinations are among other technical challenges facing this agreement. Experts emphasize that the effect of this decision on the final prices for consumers may be small and short-term, and even if the shipments are exported from Russia, it will take time to reduce the price at the American gasoline pumps. It is not only technical and economic problems that threaten the agreement between Trump and Putin on the export of Russian diesel.

Inside the US, this move has been seen as a sharp turn from the policy of maximum pressure on Russia. A month ago, Trump signed bipartisan legislation to tighten sanctions on Russia's energy revenues. Some US lawmakers, including

Trump's allies in the US Congress are against this agreement and have promised to pass a bill to block the purchase of oil and diesel from Russia. Ukraine has also criticized Trump's recent decision in the strongest terms.

Volodymyr Zelensky called this agreement "terrible and unfair" and "a birthday gift to Putin" and emphasized that giving gifts to Putin will not bring peace, but will prolong the war. Immediately after that, the Ukrainian army demonstrated Kiev's practical opposition with a drone attack on one of the Russian oil refineries.

Of course, this approach of the Ukrainian government was so expensive for Trump that in a public comment he called for Zelensky to be removed from power and hold presidential elections in this country so that maybe the replacement can make peace with Russia or at least continue Trump's self-proclaimed ceasefire to stop the attacks of the two countries on the energy infrastructure, so that maybe this way the problem of energy shortage in the world will be solved and the price of gasoline and diesel in the United States will decrease.

However, it seems unlikely that the gasoil agreement between the United States and Russia will last more than three weeks until the mid-term elections of the American Congress.