US Companies Avoid Russian Diesel Imports Amid Sanctions and Legal Uncertainty
Legal, Political, and Operational Barriers to Russian Diesel Imports
By Arathy Somasekhar, Lisa Baertlein and Nicole Jao
Sanctions and Legal Uncertainty
HOUSTON, Nov 11 (Reuters) - US companies are unlikely to import Russian diesel as a tanker full of the fuel idles off the US Eastern Seaboard, experts said, despite President Donald Trump's temporary waiver of some sanctions on Moscow's fuel exports.
Banks are likely to be reluctant to finance US deals for Russian diesel, the experts said, noting there are legal questions about whether the president's waiver is enough to allow for the imports. There are also operational challenges, because importers would need to blend the Russian diesel to meet US heating oil specifications.
Background on Sanctions
US lawmakers from both parties objected last month, when Trump temporarily waived parts of a law that slapped Moscow with sanctions after its invasion of Ukraine. Former President Joe Biden imposed the sanctions after the 2022 invasion, and Congress later backed them and codified them as law.
Market Impact and Diesel Prices
Looking to lower diesel prices that spiked during the US-Israeli war on Iran, Trump's plan would allow Russia to immediately export 300,000 tons, or 2.25 million barrels, of diesel to US and global markets. This would be followed by 500,000 tons in November and 1 million tons "immediately thereafter."
The price of diesel in the US was $6.13 per gallon on Wednesday, according to the American Automobile Association. That is down 20 cents a gallon from $6.33 the day that Trump waived the sanctions in October but up 63% from $3.76 before the US-Israeli war on Iran began in late February, according to AAA data.
Russian Diesel Cargo and US Response
A tanker carrying the first cargo of Russian diesel for the US halted its voyage off the East Coast this week, shipping data showed on Tuesday. Its operator said the destination had not yet been decided.
On Tuesday, US Energy Secretary Chris Wright said he was confident the idled tanker would help supply global markets even if it did not land at a US port. "We just want that diesel going into the world markets," Wright told reporters at an event in New Orleans.
Legal Risks and Compliance Concerns
Temporary Waivers and Legal Opinions
Last month, the US Treasury Department issued a general license temporarily permitting imports of Russian diesel. But any buyers could damage their reputation and also face legal risks if they engage in such “prohibited but authorized transactions,” said Jeremy Paner, a partner at law firm Hughes Hubbard & Reed and a former US sanctions official.
Paner said any savings from buying cheaper Russian diesel could easily be wiped out by the need to pay hundreds of thousands of dollars in legal fees from likely upcoming congressional investigations.
“It’s a relatively easy call for businesses to say, ‘We don’t want to touch it,’” Paner said.
Political Blowback and Legislative Pressure
Bipartisan Opposition
POLITICAL BLOWBACK
Dozens of US senators, including six Republicans, have called on Trump to rescind the deal, saying it helps Russia fund attacks on Ukraine and has no benefit to Americans. New Jersey's Democratic Governor Mikie Sherrill has warned local port officials and terminal operators against accepting Russian diesel, saying those shipments would break federal law.
Existing Laws and International Sanctions
A handful of laws prohibit importing Russian oil products, analysts and lawyers said. Several jurisdictions, including the UK and the EU, also sanction Russian crude and fuel.
Long-Term Liability for Importers
US Representative Jamie Raskin of the House Judiciary Committee said in a letter that importers would remain liable "long after the current administration leaves office." The letter to oil industry groups and the US Chamber of Commerce cited a 10-year statute of limitations.
"Your members are now on notice that taking part in any effort to help President (Vladimir) Putin hawk Russian diesel in the US is a clear and dangerous violation of federal law,” he wrote.
Challenges for US Importers
A Trump administration official said the temporary waiver was in compliance with all applicable laws. Still, finding a willing US importer might prove difficult.
Banks are unlikely to finance deals related to a Russian diesel trade, which could violate sanctions in other countries, said David Tannenbaum, director of sanctions consultancy Blackstone Compliance Services and a former US Treasury sanctions specialist.
"The money that's on the table for a single deal in comparison to the compliance costs and potential headaches, I would be a hard pass," he said, adding that every party downstream that touches the cargo and distributes it was a potential subject for an investigation in the US Congress.
Operational Hurdles and Future Outlook
Blending and Specification Issues
The Russian diesel would also need to be blended to meet New York Mercantile Exchange heating oil specifications, adding another deterrent for importers, Natalia Losada, an analyst at Energy Aspects, wrote in a note, adding that cargoes may still end up diverting to Brazil or other more traditional destinations for Russian diesel.
Market Uncertainty
"If the first vessel is unable to dock or discharge in any US ports, that does create that bit of a hurdle for every further vessel that is on its way," said Janiv Shah, a vice president at consultancy Rystad Energy.
(Reporting by Nicole Jao in New york, Lisa Bartlein in Los Angeles and Arathy Somasekhar in Houston; Editing by Liz Hampton and David Gregorio)
