Russian Diesel Deal Unlikely to Relieve US Prices

Joining us now is Chris Kennedy, our economic statecraft lead here, at Bloomberg. Chris, you you put out a note on this in short order after this announcement from the president, and I wanna start just sort of with the depths that The US faces here. The US consumes 3,700,000 barrels of diesel per day and produces about 5,300,000 barrels per day, you note. With that in mind, what kind of a difference is an announcement like this likely to make to the pain that so many people who rely on diesel in all kinds of sectors in The US have been facing here? Yeah. Thanks, David. The short answer is not much. So if we look at these projected, you know, releases from Russia, the the president Trump's true social post notes 500,000 tons in November, that's equivalent to about one day of US diesel consumption. So it's not a huge amount, and we don't expect it'll have much of an impact. And that's putting aside all of the legal and logistical challenges of getting, Russian diesel to The US. Chris, there's two issues here. Right? There's this promise of this certain amount of quantity of diesel, but then Russia has also self imposed an export ban for refined petroleum products because there was a shortage within the country after Ukraine successfully struck a lot of their refining facilities. So on the larger picture, I mean, you write that Russia's supply is large enough to matter. It accounted for about 11% of global seaborne diesel trade in 2025, but that's not the number we're talking about here, is it? No. It isn't. And the reality is Russia still faces real constraints on its refining capacity. About 50% of its diesel refining capacity has been hit by Ukraine, and that refining capacity can't come back online as quickly because of Russian sanctions. Ukraine has successfully targeted parts of these refineries for which parts are not necessarily readily available. So we do think that over the past few weeks, we've seen Russian diesel, stockpiles start to rise again, and we... As you noted, we put out a note. That was an update to a note earlier this week where we talked about this possibility. We do think they have some space to export, but not at the levels that we saw, you know, last year before Ukraine really, accelerated its campaign on Russian infrastructure. I'm gonna have you assess whether or not this is in fact a birthday gift to to president Putin as you look at it. So, yes, there is this, the the transfer of all of this diesel. There's also the waiver of these sanctions that have been in place. Okay. You don't have to say if it's a gift or not. But but how good is the good news here that Russia's received here from the president of The United States? It certainly is not bad. I think the real the real thing is even if, you know, we saw, as you mentioned earlier, Ukraine has hit another Russian oil terminal today. Even if this doesn't come to fruition, Putin is now in a place where he can call up president Trump and say, hey. Sorry. We can't get that diesel to you because Ukraine has continued its attacks. And and so this is a really difficult situation, for president Zelensky, and, you know, there'll be a difficult choice, I think, to whether or not to continue this successful campaign on Russian refining capacity that has created real shortages in Russia and put pressure on Putin as he continues to wage his war. Because I saw you tweet about this soon after it was announced saying it seems like this this might not be legal, or to David's point, do they have to issue a sanctions waiver against themselves? I saw the president of the Cato Institute respond to your tweet saying congress just passed a law giving president Trump the power to impose new tariffs on major buyers of Russian oil and gas. Can America tariff America? Yeah. So a couple laws. Less than a month ago, the president signed into law the Lindsey Graham sanctioning, Russian oil I believe. I might have just Right. That... That's very close, I think. Yeah. You know, allowing the president to impose new sanctions and, tariffs on countries that continue to purchase Russian oil. So, obviously, this is in conflict with the spirit of that. But more importantly, in 2022, the congress passed a law called the ending Russian, importation of Russian oil act, and, you know, that explicitly says The US shall not import any oil or petroleum products from Russia until such time that Russia has stopped its war with Ukraine, withdrawn troops, and the president has certified that to the congress. Now not a lawyer. We'll defer to the lawyers on the, the authority that the president has to essentially certainly go against the spirit of that law, if not the letter. But there are clearly legal questions about whether or not the president and the Department of Treasury can take the actions that they've taken over the past day. I saw in a a piece that Bloomberg put out this question raised by an analyst of whether Russia could actually refine and export as much diesel as being called for here. What do we know just about the condition of that refining capacity within Russia? As you you rightly bring up just a moment ago, we've seen still more attacks from the Ukrainians, and it seems like president Zelensky isn't especially open to president Trump's insistence that the attacks on energy infrastructure in Russia end. Is Russia capable of producing and exporting as much diesel here as The US wants and indeed thinks it's getting? It's... We don't have the best data on this. From what we can tell, Russia's refining capacity has been severely hit, and we've actually seen Russia pick up its own imports of diesel and other products over the past couple months. But as I mentioned, you know, we have seen... The way in which, you know, we don't need to get into the technical, details of refining, but, basically, every barrel of oil produces about a third of a barrel of diesel and two thirds of gasoline. So when you ban the export of diesel, you create these sort of structural imbalances that distort the market, and that's creating problems in Russia. So we do think that they are currently building up some diesel stockpiles. They could probably export that. But, again, to go back to the to the top of the segment, we're talking about a very small amount of diesel in the grand scheme of things. November, 500,000 tons. That's how much The US currently consumes in a single day, and Putin's offering to to export that over the course of a of a month. So it's not a huge material shift.