By Fabio Ashtar Telarico
On October 9, the US Treasury issued General License 135 (GL135), authorizing transactions involving Russian-origin diesel until April 7, 2027. On October 13, just four days after GL135 was issued, a tanker transporting roughly 40,000 tonnes of ultra-low-sulfur diesel was en route from the Baltic port of Primorsk toward Morocco. The destination of this shipment was not coincidental either, with the African country having struggled to procure diesel and petrol since the start of the Iran war.
In this sense, GL135 changes the economic calculus for countries that have had to keep their energy ties with Moscow politically or commercially opaque in order to preserve their traditionally close relation with the US and avoid straining relations with the EU. Moreover, the Moroccan case suggests that international sanctions regimes may have limited leverage over third countries once the threat of US enforcement is removed. So, although many US allies were already importing fuel from Russia (Figure 1), GL135 will affect the steep discount and simplify the logistic arrangements that characterized those transactions.
Therefore, the likeliest near-term consequence of GL135 is rerouting barrels that might otherwise have gone elsewhere to US-aligned countries and, possibly, reducing the discount at which Russian diesel traded because of sanctions-related risks, although global supply barely budges. In other words, two seemingly contradictory outcomes can coexist: the pressure on regions struggling to source fuel may ease as diesel shipments from Russia become easier to arrange and reach more buyers, yet the global market balance changes little. Still, the less discussed question is whether easier access to Russian diesel may have been deemed necessary to weaken China’s leverage over fuel-short buyers.
How China Helped Push Washington to Ease Restrictions on Russian Diesel
The origins of GL135 should be understood through the interaction between US domestic political pressure and global market imbalances. Indeed, US domestic politics may itself be partly a consequence of the global diesel supply shock, given that disruptions to shipments through the Strait of Hormuz have contributed to US retail diesel prices reaching levels not seen since 2008. Nevertheless, the timing makes the domestic political dimension difficult to ignore: the move came weeks before the midterm elections, when high diesel prices had become a political liability for Republicans.
The geoeconomic rationale behind GL135 is potentially even more relevant, albeit less discussed. Over the summer, China helped cap oil prices by limiting its imports of crude and, given a supply shock is now hitting another market tightly linked to that for oil, one could have expected Beijing to help stabilize the global economy again. Not least because Chinese commercial inventories of middle distillates, a category including diesel and jet fuel, are down just 8.4% from October 2025. However, China’s willingness to mitigate the crude-supply shock correlated with a different set of market circumstances, not least the US’s ability to increase production to avoid domestic shocks and alleviate scarcity through its strategic reserves. Instead, this time China is prioritizing its energy security by shoring up its strategic reserves and by restricting and tightly managing diesel exports. As a result, Beijing commands enough refining capacity to ‘bail out the diesel market’ and it has acquired new leverage over fuel-importing countries that are increasingly exposed to its supply decisions.
Meanwhile, the US has not increased its supply enough to help the Philippines, Morocco, Tunisia, and other allies struggling to secure enough fuel to keep their economy running (Figure 2). Not least because rising prices at home reflect the level of US commercial inventories of refined petroleum products, which are over 10 million barrels lower than last year and regional stocks are up to 32% below the 2021-25 seasonal average. Crucially, the US has got less leverage in the diesel market than for crude, where releases from the strategic reserves and increased output can readily materialize. Moreover, a rapid increase in domestic refining is unlikely given that US refineries are already operating close to the mid-90% in utilization and there is no idle capacity that can come online on short notice. Rather, declining stocks are chiefly due to the closure or conversion to biofuel of several refineries across the country partly motivated by ‘green’ policies. According to one estimate, seven major closures and conversions have removed roughly 1.235 million barrels per day of US refining capacity, more than 6.5% of the total, making external supply disruptions more consequential.
Seen in this context, GL135 appears not just as an electoral maneuver, but also as an effort to reduce Chinese leverage on global diesel supplies by allowing buyers facing prohibitive prices to tap more openly into Russia’s exports. However, the move will not materially balance the global diesel balance because the binding constraint remains operational refining capacity. Moreover, Moscow does not appear able to release large quantities of diesel into the market, let alone enough to match the scale of China’s reduced exports, given that Ukraine continues to carry out attacks on Russian refineries. Still, the case of Morocco offers an early indication that removing sanctions on Russian diesel may grant some US allies temporary relief from domestic and regional diesel shortages even if the global market imbalance is not corrected any time soon and Russian refining capacity does not recover.
The Re-routing of ‘Old’ Barrels and the Likely Effect on Russian Producers’ Netbacks
Having settled the origins of GL135, the next question is who benefits from the rerouting of hundreds of thousands of tonnes of diesel to buyers in undersupplied fuel markets.
GL135 widens the set of eligible partners from which fuel can be imported by removing the sanction-risk associated with Russian-origin diesel. However, several analysts tend to agree that a mere reallocation of existing barrels cannot solve supply bottlenecks in the diesel market as effectively as a recovery in refinery output in the US and Russia, unblocking traffic through Hormuz, or a liberalization of Chinese diesel exports. So, the answer depends less on the number of Russian barrels being traded than on how the value of those sales is redistributed.
Given that global supply remains insufficient to balance an inelastic demand and even oil producers like Russia and the US have struggled to add refining capacity, as Russian diesel gets rerouted the main near-term effect may instead be a redistribution of profits. The main reason Russian producers’ revenues could grow in the short term is that the sanction risk likely translated into a discount on the sale price of diesel, as it has done for crude oil. These price cuts drove exporters’ netbacks down. To further complicate matters, Russian exporters do not typically pay for insurance and freight, since their oil and fuels are sold on ‘free-on-board’ (FOB) terms, yet the seller’s netback can still be affected indirectly by changes in freight and insurance. Practically, buyers’ willingness and ability to pay can limit the sellers’ ability to pass freight and insurance costs through and reduce its netback. Hence, the extensive sanctions with which the G7 established for maritime service providers working with Russian oil companies, put further downward pressure on the latter’s netbacks.
In fact, while the product was being sold at a discount, freight cost rose to cover the so-called ‘shadow-fleet premium’ that shippers demanded as compensation for the sanctions and compliance risks. So, as long as those sanctions were backed by the threat of US enforcement, including through tariffs, part of the margin that would otherwise have accrued to Russian sellers shifted to logistics operators and intermediaries.
The result was that sanctions-related discounts reduced the price charged by Russian exporters, but did not necessarily translate into equivalent savings for retail consumers as higher intermediation costs absorbed part of the difference.
Against this background, GL135 could partially reverse that mechanism by giving Russian exporters access to a wider pool of tankers; in the best case, one estimate puts Russia’s gain at $30–40 per tonne of product. However, even if this growth in netback was to materialize, GL135 cannot spur Russian refining capacity on its own. Ukraine’s long-range strikes against Russian energy infrastructure appear to be a major contributor to tighter diesel supply, with the country’s refining capacity having fallen by at least 25-28% or, according to Ukrainian estimates, being halved as a result.
In a last-ditch effort to salvage the total-volume effect of GL135, President Trump demanded that the two countries abide by an ‘energy ceasefire’; however, the truce quickly collapsed and both parties continued to attack each other’s refineries. Hence, unless Ukrainian strikes abate sufficiently for Russia to bring some refining capacity back online and the Kremlin further liberalizes diesel exports, the US administration’s hopes of materially lowering diesel prices through GL135 are likely to be frustrated.
In other words, what little Russian refiners can get out of the country is almost surely going to come with a better netback through potentially lower shipping costs as the removal of US sanctions exposure allows Russian exporters to access a wider pool of vessels. Meanwhile, the resulting benefit to Russian exporters is nevertheless likely to be modest given its own diesel supply is shrinking and expectations of a discount for retail consumers remain unrealistic.
The US-China Rivalry Is Key in the Geoeconomics of Diesel Scarcity
These reconstructions and pieces of evidence suggest that GL135 is neither just an electoral handout nor a gift that helps Moscow solve its financial woes. Moreover, they arguably nudge toward reading this policy change as an attempt by Washington to regain room for maneuver and reduce China’s leverage in a tightening global fuel market.
Despite the fanfare, GL135 cannot create the refining capacity needed to eliminate the diesel shortage, restore the flows disrupted by the Iran war, or make up for China’s tight grip on the export of middle distillates. Meanwhile, without a partial ceasefire in Ukraine, Russian refinery capacity remains constrained because the volume of Russian diesel that can realistically be redirected is too small to rebalance the global market. What GL135 can change is who has access to the barrels that are already available. By removing the sanction-risk associated with US enforcement of a ban on Russian diesel, the move gives fuel-short buyers another source of supply at a time when China’s decision to limit refined-product exports grants it undeniable market power and, potentially, strategic leverage.
That distinction also explains why GL135 is unlikely to deliver the domestic windfall that those reading it as an electoral handout point at. Additional Russian cargoes can ease shortages in particular markets, but rerouting ‘old’ barrels is not tantamount to adding ‘new’ ones to the market. And even where Russian exporters’ netbacks may improve as a result, the gain is unlikely to translate directly into cheaper fuel at the pump. Moscow may recover part of the margin lost to sanctions-risk premiums and discounts, but without brokering a deal with Ukraine it cannot fix its damaged refineries and flood the market with ‘new’ diesel.
The irony is that a measure whose lasting effect, if any, is to limit China’s leverage is being presented as a concession to Russia or domestic politicking. Ultimately, the broader significance of GL135 is geoeconomic rather than electoral and concerns China much more intensely than Russia. In a market where refining capacity and access to alternative suppliers have become sources of strategic leverage, Washington is trying to keep China from acquiring too much say over its allies’ access to scarce, but essential, fuel supplies.
