In 2022, Brazil purchased 101 thousand tons of diesel from Russia. In just one year, the volume broke a record and rose to 6.1 million tons. This scenario reflects the European response to the war in Ukraine: after Russia’s invasion of Ukraine, the European Union (EU) decided to cut the energy ties it maintained with the aggressor country, which for years was the its main source of energy. This decision had side effects that were felt in Brazil. With the European embargo on Russian oil and diesel, Brazil has become the third largest importer of hydrocarbons from Russia, behind only China and Turkey, two nations historically less aligned with the West.
In 2022, Brazil imported 101 thousand tons of diesel from Russia, for a total purchase of $95 million. In 2023 it imported 6.1 million tonnes – an increase of 6000% compared to the previous year -, spending 4.5 billion dollars on this business. This increase made the country the largest importer of Russian diesel.
At times, more than 90% of the diesel imported from Brazil was of Russian origin. In the case of oil, an increase in imports of 400% was recorded in the annual comparison.
“The trend observed throughout 2023, marked by the increase in imports of Russian diesel by Brazil, mainly replacing volumes from the United States and India, was significantly influenced by the full application of European sanctions on Russian diesel” , says Rystad Energy analyst Raffaello Faucz. The movement began with small importers trying to take advantage of the discounts offered by Russia, a strategy that was later adopted by large companies as well, with the aim of maintaining competitiveness in the market, currency.
“While Russia has had to find new homes for its diesel amid European sanctions, Brazil has proven a willing buyer,” says Matt Smith, an analyst at Kpler. Russia exports about 950,000 barrels of diesel per day and before the embargo sent about 70% of this volume to the European Union and the United Kingdom.
Cheapest and most popular product
The president of the Brazilian Association of Fuel Importers (Abicom), Sérgio Araújo, confirms his intention to seek lower prices among suppliers and says that the result has had an impact on the pockets of Brazilians. “Considering that there is competition in the primary supply of diesel fuel, as well as in the distribution link of the supply chain, the discounts obtained on imports have been passed on to prices at the pump,” he adds.
Director of refined product pricing in the Americas at Platts, part of S&P Global Commodity Insights, Matthew Kohlman, highlights another aspect that has boosted imports. “Brazil’s economy is growing, especially agricultural markets that depend on diesel for transportation. Local refineries have increased production, but have not yet been able to keep up with demand,” he points out.
The topic is still seen as a priority for the energy security of Brazil, a country whose freight transport matrix depends heavily on diesel vehicles. “Undoubtedly, imports must be considered a priority to ensure energy supply and national security. The deficit in national production amounts to approximately 30% of demand,” says Araújo.
Discomfort with the West and risks
For Faucz the change in the import landscape was not driven by deliberate public policy, but rather by the dynamism of private agents seeking the best market opportunities. “So far there has been no significant control by the United States or the European Union over the flows of oil and derivatives from Russia,” he says.
In his view, this is due, in part, to global concerns about inflation and fuel prices, especially in a critical election year in the United States, which have led these powers to adopt a more cautious stance on imposing pressure additional. “There is unlikely to be a significant increase in pressure from the West for Brazil to stop importing diesel from Russia,” he estimates.
In September 2023, the Russian government ordered a ban on fuel exports from the country, with the aim of ensuring domestic supply. At the time, the movement forced Brazilian importers to look for last-minute options. Regarding the scenario and possible risks, Araújo claims that the ban was for a short time. “We are aware that there is no risk of interruption of activities,” he says.
For Faucz, a suspension or reduction of Russian exports would cause, on a global scale, an increase in prices, consequently influencing the reference for local refineries in Brazil. Furthermore, Brazilian importers, faced with the need to look for alternatives in potentially less competitive markets, could find themselves faced with a reduction in their profit margins, which, in turn, would have a direct impact on the final price to the consumer, with a possible increase in costs. cost of diesel at the pumps.
Scenario probably maintained in 2024
“For 2024, considering the continuation of sanctions on Russian cargoes, the trend of importing Russian diesel into Brazil is likely to continue, with the country continuing to offer attractive discounts, and if market conditions continue to favor this option “, evaluates Faucz.
According to Araújo, considering the expectation of an increase in GDP in 2024, the strong correlation between activity and diesel consumption and the maintenance of the current supply of the national product, the imported volume should be slightly higher than that observed in 2023 “Increasing the biodiesel content in diesel fuel will not have an impact on the need for imports,” he further stresses. “The expectation is that Russia will continue to offer products at discounted prices, being the best option for importers.”
Source: Terra
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