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.
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 one 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 per cent from $3.76 before the US-Israeli war on Iran began in late February, according to AAA data.
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.
Last month, the US Treasury Department issued a general licence 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 authorised 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.
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.
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.
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.
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.
"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)