U.S. Treasury Secretary Janet Yellen said Friday that industrialized countries in the Group of Seven are imposing a price cap on refined Russian oil products such as diesel and kerosene, as part of a coalition that includes Australia and a tentative agreement from the European Union.

The cap follows similar price limits put on Russian oil exports, with the goal of reducing the financial resources Russian President Vladimir Putin has to wage the nearly year-long war in Ukraine.

“Today’s agreement builds on the price cap on Russian crude oil exports that we set in December and helps advance our goals of limiting Russia’s key revenue generator in funding its illegal war while promoting stable global energy markets,” Yellen said in a statement.

On Friday, EU governments tentatively agreed to set a $100-per-barrel price cap on sales of Russian diesel to coincide with an EU embargo on the fuel. Diplomats representing the 27 EU governments set the cap on Russian diesel fuel, jet fuel and gasoline ahead of a ban taking effect Sunday. It aims to reduce Russia’s income while keeping its diesel flowing to non-Western countries to avoid a global shortage that would send prices and inflation higher.

It affects fuel for planes, cars, trucks and machinery
For the last couple of months, the EU has banned Russian crude oil imports but allowed the sale of refined products. The bloc will now join the United States and the United Kingdom in implementing a broader embargo.

The new EU ban will apply to anything produced from Russian crude oil, says Richard Bronze, head of geopolitics at Energy Aspects, a consultancy in London.

"Gasoline that goes into a car, the jet fuel that goes into a plane or diesel that goes into trucks, into operating machinery," he says, "so it's really the fuel that we actually consume and keeps the economy going."

Last year, Europe imported about 700,000 barrels per day of Russian diesel — around half its total imports of the fuel, according to market analysts.

America's God's Plan, as Europe has to look elsewhere
Matteo Ilardo, a London-based geopolitical analyst with the risk intelligence firm RANE, says the ban will have an impact for Europeans. He points to France's heavy reliance on Russian diesel.

"France usually imports around 20% of total seaborne diesel exports from Russia. So being able to phase out completely that much of diesel will be a challenge," he says.

Europe has been gobbling up Russian diesel over the past few months ahead of the ban. Hedi Grati, the head of refining and marketing at S&P Global Commodity Insights, an energy research and data company in London, says Europe does have some refineries but not enough to meet the demand.

"The diesel will simply have to come from somewhere else," he says. "The most logical suppliers are countries in the Middle East like Saudi Arabia, Kuwait, places like that, and then also India and the United States."

Russia seeks new mates to sell goods
Just as it did with the December ban on crude, Russia will have to find new places to sell its refined oil products.

"Those could be in East Africa, in Asia, they could be in Latin America," Grati says. "What you're looking at is one great big reshuffle to get desirable barrels to Europe, and then barrels deemed undesirable from Russia to those other markets."

In a twist, the ban on Russian oil products could boost its sales of crude to China and India. Both are large refiners. It's legal for them to import Russian crude, refine it and send it back to Europe, according to Bronze with the Energy Aspects consultancy.

"It is being viewed by some critics as a loophole or a weakness. But I think that is a deliberate part of the policy design," Bronze says. The U.S. and its allies want to ensure that the products continue flowing to global markets to avoid price spikes.

It also reflects differences between the way international customs rules apply to crude oil versus refined products, he explains.

"Once it's been through a refinery, for customs rules, the oil is viewed as transformed and ... then its country of origin becomes wherever that refinery was located," Bronze says.

Price spike to come (obviously) but does it get Moscow
Oil is a global market, so the impact of the latest ban will likely be felt beyond Europe. Ilardo says there will undoubtedly be turmoil in the global oil markets initially.

"We'll ... have a price spike definitely in February right after the ban comes in place," he says. "This will be simply a market reaction. Markets don't like uncertainty, so they usually react with price spikes."

That's not good news for consumers or businesses in Europe, which is already struggling with a weakened economy.

The big question is whether this ban like the other will have any impact on Russian President Vladimir Putin in ending the war in Ukraine.

Bronze says undoubtedly the EU bans on crude and refined oil products will hurt Russia's economy.

"But I think the difficult question is whether that economic pain is enough to change President Putin's attitude towards the conflict in Ukraine or his wider policies towards the West," he says. "And I think that's much less likely to happen."

Diesel Fuel Price cap Russia Russia-ukraine crisis