Russian government halts diesel exports and slashes tariffs to counter severe seasonal fuel deficit

Russian Deputy Prime Minister Alexander Novak reported to President Vladimir Putin during a meeting with government members that while the cabinet has partially stabilized the domestic fuel market, altered logistics caused by refinery attacks and a sharp spike in seasonal demand continue to strain the sector.

Novak stated that attacks on Russia’s fuel and energy infrastructure damaged several oil refineries, leading to a temporary decline in gasoline and diesel production.

The drop in output has necessitated new shipment routes to deliver fuel to end-users, Novak said, adding that current demand is approximately one-third higher than during the same period last year.

The deputy prime minister noted that this situation has increased the burden on filling stations, raising the number of vehicles visiting the stations and leading to longer refueling times.

To balance the market, Novak recalled that the government and oil companies had previously taken a series of steps. Within this scope, gasoline exports were completely banned, and the production capacities of small and medium-sized refineries were utilized. Oil companies also maximized the capacity utilization of operating refineries, shortened maintenance periods, postponed planned maintenance to later dates, and released previously accumulated fuel inventories to the domestic market.

Government also halts diesel exports

Novak announced that the government banned diesel exports on July 8 as an additional measure.

Stating that oil product imports will be increased in July and the production of fuel with lower environmental standards will be expanded, Novak noted that the zero tariff on oil product imports was extended for another year to support imports.

Furthermore, Novak stated that the government reached an agreement with Russian Railways (RJD) to apply discounts on the rail transport of imported fuel. He also recalled that the mandatory exchange sale quota for gasoline was reduced from 15% to 10% and a price ceiling was imposed on the commodity exchange.

To secure the volume of fuel required by independent filling stations, Novak said that these operators have transitioned to direct contracts with oil companies, noting that this practice has been implemented in the Irkutsk Region and the Zabaykal Krai.

According to the information provided by Novak, independent filling stations previously purchased the bulk of their fuel from the commodity exchange or intermediary companies. Out of approximately 29,000 filling stations in Russia, 20,000 belong to independent operators.

Putin backs small refinery proposal

Zabaykal Krai Governor Alexander Osipov, who attended the meeting, proposed the establishment of a network of small-scale oil refineries across Russia.

Putin supported this proposal, stating, “In this area, the participation of small and medium-sized enterprises in the process is also necessary and encouraged. We will work more intensively on this matter.”

The Russian president also said that vertically integrated oil companies must supply products not only to their own stations but also to independent filling stations.

Putin instructed the government to make decisions regarding the subsidization of fuel prices in Crimea and Sevastopol “as quickly as possible.”

According to July 6 data from the Russian Federal State Statistics Service, the price of a liter of AI-92 gasoline in Crimea rose to 123.53 rubles. This figure represents an increase of approximately 50% on a weekly basis. The price of a liter of AI-95 gasoline rose to 170.59 rubles, increasing approximately 1.9 times, while the price of a liter of diesel reached 139.15 rubles, rising approximately 1.6 times.

In Sevastopol, the price of a liter of AI-92 gasoline rose by 8% to 105.47 rubles, the price of a liter of AI-95 gasoline increased by 15% to 148.64 rubles, and the price of a liter of diesel rose by 8.5% to 150.49 rubles.

Across Russia, in the week of June 30 to July 6, the price of a liter of AI-92 gasoline increased by 2% to 70.21 rubles, and the price of a liter of AI-95 gasoline rose by 2% to 76.19 rubles. The price of a liter of diesel reached 87.76 rubles, representing a 3% increase.

Since the beginning of the year, gasoline prices in the country have risen by 14%, while diesel prices have increased by 15%.

At the end of June, local governments in various regions of Russia introduced different restrictions on fuel sales to prevent panic buying.

Putin said on June 28 that there was a fuel deficit in the domestic market, but it was not at a critical level. Holding a meeting on the oil products market on the same day, Putin requested the preparation of additional measures to guarantee the uninterrupted supply of fuel to citizens, businesses, and socially critical institutions.

According to Sergey Tereshkin, General Director of Open Oil Market, the main reason for the spike in fuel demand is concern over potential supply shortages. Tereshkin said that consumers have increased both retail and wholesale purchases out of concern that access to fuel may become more difficult in the coming weeks and months.

Dmitry Kasatkin, Partner at Kasatkin Consulting, stated that the fuel shortage stems from a combination of altered logistics, local supply disruptions, and panic buying driven by high seasonal demand. He noted that demand for gasoline and diesel has increased not only in the retail market but also in the small and medium wholesale market.

According to Kasatkin, banning exports, postponing refinery maintenance, operating existing facilities at higher capacity, and releasing inventories into the market are among the most effective measures to increase domestic supply. However, he emphasized that delivering fuel to regions where the shortage is felt most acutely is also of critical importance.

Kasatkin said that increasing gasoline imports, RJD transport discounts, and production increases at small and medium-sized refineries are also important supporting steps, but their success will remain dependent on resolving logistics issues.

Tereshkin argued that the most critical steps are halting oil product exports and increasing fuel imports. Igor Yushkov from the Financial University under the Government of the Russian Federation assessed that increasing gasoline imports and the production of fuel with lower environmental standards would be the most effective measures.

Mikhail Burmistrov, General Director of Infoline-Analitika, said that RJD can apply discounts on certain routes, which will encourage the transport of additional cargo on the railway network.

However, Burmistrov stated that due to the limited capacity of unloading and loading terminals on the railways, the volume of these shipments should not be overstated, adding that the bulk of imported fuel will be transported by road.

Kasatkin predicts that partial stability could be achieved in the Russian fuel market during July. However, in his view, establishing a permanent balance between supply and demand, easing panic buying, and rebuilding inventories may take until late August or early September. He warned that local fuel shortages could occur in some regions until that date.

According to the analyst, if the measures taken by the government prove effective, price increases at filling stations may slow down in the coming weeks. Conversely, even if the market stabilizes, fuel prices are not expected to return to their former levels.