Trump strikes deal with Putin on diesel

Vishala Sripatma (0:00)

Will there be lower prices at the pump before an election? Donald Trump is striking a deal with Russia and it's raising eyebrows.

SPEAKER_2 (0:09)

Lower prices for Americans, especially our great farmers, ranchers and truckers, is my greatest priority.

Vishala Sripatma (0:16)

It's World Business Report from the BBC World Service.

I'm Vishala Sripatma. On the way, will cheaper diesel come at a geopolitical cost? Donald Trump says a deal with Vladimir Putin could slash fuel prices. Plus, Aaron Sorkin returns to the silver screen with another film about Facebook.

So President Trump says he's reached an agreement with Vladimir Putin for Russia to supply large quantities of diesel to US and global markets. He said an initial 300,000 tonnes will be released immediately and promised the supply would help bring down global prices. Many Americans blame Mr Trump for the high cost of filling up their cars as a result of his war on Iran. Well, President Putin's envoy said the agreement would benefit the world. Russia suspended exports in July in response to Ukrainian attacks on its refineries. The Ukrainian president, Vladimir Zelensky, said allowing Russia to sell petroleum products would prolong a war that must be ended. Well, Christoph Ruhl is a global advisor at consultancy Crystal Energy. Hi Christoph.

Christoph Ruhl (1:31)

Hello.

Vishala Sripatma (1:32)

So Christoph, will this lead to the price of diesel falling?

Christoph Ruhl (1:37)

It's probably contributing at the margins a little bit. It's an announcement which was very specific in numbers for October and November. And if I translate these numbers into and compare them with the shortfall in global diesel production which we have at the moment per day, then they would compensate for about 7% of what is missing day for day at the moment. These are all rough estimates. And 7% that means there might be a marginal price effect, but you shouldn't expect to really to move the dial.

And this is all assuming that this diesel is really there and is additional.

Vishala Sripatma (2:13)

Yes, that was going to be my next question. Russia suspended exports back in July. Is it in any position to export diesel given the damage that we hear has been done to its refinery capabilities?

Christoph Ruhl (2:27)

I am sceptical, but we cannot know. Nobody knows. I mean, these numbers are kept tight under lock and key and are state secrets.

Obviously, what we do know is that there is a potential problem. If these promised exports are really redirected exports, which would have gone out of Russia anyway, then they will have zero effect on the global market. The diesel market is the global market. If I just replace, say, some illicit shipments to India or China with official exports, sanctions are free to leave Russia by the US, then the net effect on global markets and on prices would be zero. And we don't know if this is really additional inventories which they found somewhere, if they expect to have refineries repaired by now, tomorrow basically, according to the announcement, to do these additional exports. This we cannot tell. This is the biggest question mark in this whole thing.

Vishala Sripatma (3:24)

Thank you, Christoph. Thank you. Chris Lowe is chief economist at FHN Financial in New York. Hi Chris.

Chris Lowe (3:32)

Hello.

Vishala Sripatma (3:33)

Happy Friday. What an announcement. It's rather surprising.

Chris Lowe (3:37)

It's hugely surprising. And, you know, I sensed a note of scepticism in Christoph's voice. I have to agree, you know, just last week, Ukraine estimated they had taken out 51% of Russian refinery capacity. So, I think the first question has to be where has this diesel come from?

And you know, how can Russia possibly spare it while they're trying to fight a war?

Vishala Sripatma (4:10)

Yes. And it's interesting because the market at the moment is relying on all sorts of imports from around the world. Christoph, Chinese diesel has a key role as well, doesn't it, in the market?

Christoph Ruhl (4:22)

Yeah. And this is a really interesting wrinkle in this story. Today also China announced China is an exporter of diesel. They import crude and refined and exported. They had stopped exporting at the last few months because of the tightness, I think.

And today they announced that they would resume exports. And historically, the Chinese exports are of a similar order of magnitude as these Russian exports which have promised for the next two months. The difference obviously is that this was an announcement by China, not by the American president about China. The Russian story is an announcement first by the American president about the numbers and then confirmed by Russia.

Vishala Sripatma (5:02)