Russia: the second wave of the fuel crisis

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Signs of a deepening fuel crisis have reappeared in Russia since August, with petrol shortages reported in many regions, alongside rising prices and queues at filling stations. The situation deteriorated after Ukraine intensified its attacks on Russian refineries, following a period of partial market stabilisation in mid-July. At least 22 strikes took place in August, the highest monthly number since the start of the war.

As a result, regional authorities and some filling stations have reintroduced fuel rationing. According to Bloomberg, Russian refinery throughput averaged 3.8 million barrels per day (bbl/d) in August, remaining at a low level since June. Before the crisis, the average throughput exceeded 5 million bbl/d. Rosstat reported a renewed increase in petrol prices, which have risen by more than 21% since the beginning of the year. By contrast, an export ban on diesel introduced in July halted the upward trend in diesel prices. Fuel availability at filling stations varies across regions, while available data suggest that supplies to Moscow are being prioritised.

Measures taken by the authorities to ease the crisis – including record fuel imports, lowering emissions standards and regulatory and distribution changes – have proved insufficient. Petrol availability is expected to improve in the coming months as demand declines after the end of the summer season. Nevertheless, unless the effectiveness of Ukrainian attacks can be reduced, the sector will continue to struggle to increase crude oil processing. This will result in higher fuel prices and continued supply shortages.

Commentary

Despite official assurances and political pressure on the sector, measures to protect refineries remain largely ineffective. On 2 September, Deputy Prime Minister Alexander Novak said that Russia had tightened security around its refineries and that their owners were funding these measures themselves. Yet at least three refineries have come under attack since the beginning of September, with two facilities – in Ryazan and Saratov – sustaining damage. The inadequate protection of this infrastructure has also prompted the authorities to step up pressure on oil and fuel companies. An August decree issued by Putin effectively transferred responsibility for protecting these assets to the companies themselves (see Dekret Putina: państwo niezdolne ochronić gospodarkę).
The decline in refinery throughput is also affecting crude oil production. Commenting on the current state of the oil and fuel sector, the Russian authorities acknowledged that lower refinery throughput has led to a decline in crude oil production. Deputy Prime Minister Alexander Novak said the decline was temporary. According to the IEA, Russia produced around 8.8 million bbl/d in July this year, about 1 million bbl/d below its OPEC+ quota and 500,000 bbl/d less than a year earlier. Reuters reports that the Russian government is preparing to revise key projections for the sector. These include a 4% reduction in its previous forecast for annual crude oil production, to around 494 million tonnes, which would be the lowest level in 17 years (see Appendix). Disruption to the sector – including reduced exports due to Ukrainian attacks on Black Sea ports – is preventing Russia from fully capitalising on higher global crude oil and fuel prices.
Attacks on refineries are worsening Russia’s fiscal position by increasing the need for government subsidies to the sector, including measures to lower the cost of imported fuel. Oil and gas tax revenues stood at 424 billion roubles in August, down 16% year on year and their second-lowest level this year. This was despite relatively favourable oil prices: the price used by the Russian government to calculate the mineral extraction tax was $59 per barrel, matching the base price assumed in the budget. The fall in revenues in August was driven primarily by the scale of subsidies paid to oil companies, including payments under the so-called ‘damper’ mechanism, which is designed to enable them to keep retail fuel price increases within the rate of inflation. The high level of these payments reflects not only high prices on global markets but also the inclusion of fuel imported by sea in the mechanism. Total subsidies to the sector reached 304 billion roubles in August, reducing overall revenues by almost half.
Fuel imports are crucial to easing shortages, but offer no lasting solution to the crisis. According to data cited by The Moscow Times, Russia imported 460,000 tonnes of fuel by sea in August, including 370,000 tonnes of petrol from India, Turkey and Morocco. This represents an unprecedented volume of supplies from these countries to the Russian market and is helping to meet demand at domestic filling stations. Russia is also importing petrol from Kazakhstan and Belarus. Russian officials have said that Moscow is buying as much petrol from Belarus as its refineries can supply: around 180,000 tonnes per month. However, maintenance work is due to begin in September at the Naftan refinery in Navapolatsk, which will reduce the volume of petrol supplied to Russia.