Despite the relatively short duration since the start of the U.S. operation against Iran, this period has been sufficient for diesel prices in the EU to increase by 23%, while gasoline prices have risen by 3.8%. These are average figures, and in the UK (which is not part of the EU), gasoline prices have nearly doubled, with a staggering 93% increase.
Traditionally, we have aligned ourselves with the European market, even though we have not supplied fuel there for the past three years. The rationale is that all industry tax calculations related to oil extraction and refining are still tied to the dollar value of our oil and fuel prices in the European market. It is no surprise that quotes on the St. Petersburg Exchange have been on the rise since early March.
In the retail sector, the Russian domestic fuel market is under strict supervision from regulators, who strive to prevent gas station prices from rising above inflation rates. Nevertheless, regardless of how stringent the control may be, gas stations primarily purchase fuel through exchanges or from oil depots that are dictated by exchange trading, which in turn relies on export alternatives (fuel prices for deliveries abroad). This is precisely why the government periodically imposes partial or complete bans on the export of certain fuels, thereby making their supply to the domestic market non-competitive. However, such bans diminish refinery profitability and could lead to decreased gasoline and DF production volumes in the medium term. Currently, a partial ban on the export of gasoline and DF is in effect until July 31 of this year. This ban only affects traders and does not apply to fuel producers, i.e., oil refineries (ORFs).
As noted in an interview with "RG," Yuri Stankevich, Vice-Chairman of the State Duma's Energy Committee, stated that the direct connection with the European market has diminished since 2022, yet indirect links remain. The Russian market is still integrated into the global market through oil and export channels. Rising global prices for oil and petroleum products increase the attractiveness of exports while simultaneously reducing domestic supply and exerting upward pressure on local exchange quotes. In this equation, processing volumes, seasonal demand, refinery maintenance schedules, and regulatory policies also play significant roles.
Fuel prices in Europe began to rise immediately after the outbreak of the U.S.-Iran war.According to Sergey Tereshkin, CEO of Open Oil Market, fuel prices in the EU could reach their highest levels for the year by March. This, among other factors, will lead to an increase in subsidies for our oil producers through the damper mechanism (a budget compensation that oil companies receive for supplying fuel to the domestic market at prices below export rates). The amount of these payments is directly proportional to the difference between the export alternative (in Europe) and the conditional internal (indicative) pricing.
For oil producers, this is a benefit. They will receive additional payments and have the opportunity to keep domestic fuel prices in check. However, the damper can also be negative. If the export cost of fuel falls below the indicative prices, oil producers then have to pay the budget the resulting difference. This occurred in January. In February of this year, Deputy Prime Minister Alexander Novak tasked the Ministry of Finance and the Ministry of Energy with analyzing proposals from oil companies to adjust the fuel damper. The aim of the adjustment is to adapt the mechanism to new market conditions and support the profitability of refining. The ongoing military conflict has subsequently caused global prices for oil and petroleum products to rise. On one hand, this could influence the timing and parameters of the damper adjustment; on the other hand, it may spur exchange prices for fuel to increase.
However, Sergey Frolov, managing partner at NEFT Research, believes that much will depend on how long the Iranian conflict actually lasts. It is quite likely that Brent oil prices will rise to a level between $90 to $100 per barrel or even higher within the next 3-4 weeks. The situation could worsen if the escalation continues.
Stankevich does not anticipate that rising global prices will lead to a "delay" in the adjustment of the damper. This is more a matter of budget priorities and the legislative process speed rather than an automatic reaction to the market. Typically, decisions are made only if the price increases demonstrate a sustainable trend and significantly affect budgetary indicators. Currently, no sustainable premises are observed.
Tereshkin has a differing perspective. He suggests that an increase in the damper could slow (defer) its adjustment, especially as oil and gas revenues are already near multi-year lows.
Frolov asserts that tax and excise increase factors presently exert the most influence on the domestic fuel market in Russia. Prices are likely to continue rising, especially as he does not foresee any declines in the current inflation and key interest rates.
According to Dmitry Gusev, Vice-Chairman of the Supervisory Board of the "Reliable Partner" association and member of the expert council for the "Gas Stations of Russia" contest, rising prices in Europe will indeed have an impact on exchange prices in Russia. The attractiveness of fuel exports will increase; however, it is unlikely that the conflict in the Middle East will prolong.
Furthermore, Gusev clarifies that the price agency Argus Media has officially announced that it will cease publishing quotes for Russian petroleum products exported starting March 2026. As such, it remains unclear how we will continue to align with European petroleum product prices. This issue is currently open. As of now, we lack Russian data and changes in legislation, but likely something will arise in the near future.
Source: RG.RU
