Russia Faces Fuel Crisis: Price Surge Forces Government to Take Urgent Action

Moscow is currently grappling with significant pressure on its fuel market as soaring gasoline prices prompt the government to consider drastic measures. The situation is exacerbated by a seasonal increase in demand, alongside production shortfalls caused by attacks on refineries. Additionally, export restrictions and logistical challenges are further complicating the market dynamics.

Recent months have seen a notable rise in wholesale gasoline prices in Russia. The primary factor behind this increase is a series of drone strikes attributed to Ukraine, which have damaged several refineries and temporarily halted major production facilities. Reports indicate that approximately 17% of Russia's oil refining capacity has been impacted by these assaults, leading to a tightening of supply and escalating costs within the domestic market.

The situation has been compounded by difficulties in sourcing replacement parts and catalysts, which have traditionally come from Western countries. While alternatives from China are available, they are often less efficient and more expensive, resulting in a decline in technological standards.

In response to the crisis, Deputy Prime Minister Alexander Novak has proposed a set of measures aimed at increasing domestic fuel availability. According to a report, these plans could potentially add 350,000 tons of gasoline and 100,000 tons of diesel to the Russian market monthly. Key components of this strategy include the removal of the current five percent import tariff for state-controlled companies such as Rosneft, aimed at facilitating imports from countries like China, South Korea, and Singapore.

To make these imports more economically viable, the government also intends to implement a price dampening mechanism to keep domestic processing prices below international market levels. However, the effectiveness of state subsidies and mechanisms aimed at stabilizing domestic fuel prices is under scrutiny as refinery margins decline due to increased costs from parts and transportation.

Another critical aspect of the proposed measures is the temporary approval of Monomethylaniline (MMA), an additive that enhances the octane rating of lower-quality fuels, which is currently banned in Russia. Experts in the industry view this as a potential short-term relief but caution against possible negative impacts on environmental and technical standards.

Additionally, Novak has suggested that production standards for gasoline should be made more flexible, allowing for limited use of ethanol and adjustments to the limits for aromatic hydrocarbons. This change aims to provide producers with greater flexibility in manufacturing processes.

Further plans include increasing the import of fuels from Belarus, with hopes to scale up from the current 45,000 tons to as much as 300,000 tons per month. However, it remains uncertain whether Belarus can sustain such capacity over the long term.

In parallel, the Eurasian Economic Commission, led by Russia, has announced a suspension of import tariffs on fuels across the region between October 10, 2024, and June 30, 2026, aiming to alleviate pressure within the economic union.

As of now, neither the office of Prime Minister Mikhail Mishustin nor that of Novak has commented on the proposed measures. In the meantime, the government has extended the ban on gasoline exports and introduced new restrictions on diesel exports until the end of 2025.