The Limits of the Tank: How the Crisis in the Strait of Hormuz Will Affect Gas Station Prices

The rise in oil prices due to yet another escalation of the Middle Eastern conflict may not only bolster Russia's budget revenues but also raise its expenditures. Starting in July, subsidies from the budget will be extended to fuel importers in addition to Russian and Belarusian oil refineries (refineries). These subsidies are tied to the export alternative (the cost of gasoline and diesel on foreign markets). Moreover, as a temporary fuel importer, it is currently disadvantageous for our country to experience disruptions in oil supplies from the Persian Gulf countries. In conditions of supply shortages, this could negatively impact gasoline exports to our country. Foreign refineries will prioritize supplying their domestic markets with fuel before sending it abroad, or exports may become expensive. For instance, in the spring, amidst the first wave of confrontation between the US and Iran, India raised export duties on gasoline, diesel, and aviation fuel due to the closure of the Strait of Hormuz, which made it impossible to ship oil from Persian Gulf countries. India is cited as the primary potential supplier of gasoline to Russia from foreign countries. The higher the price of Indian gasoline, the greater the compensation that Russian importers will need from the budget. Subsidies (dampeners) are paid to oil producers for supplying fuel to the domestic market at prices lower than export prices. This compensates for part of the difference (a coefficient of 0.68 for gasoline, 0.85 for diesel) between the indicative wholesale prices (set by the government for a year) in Russia and the export alternative (in Europe). We are forced to import fuel due to a reduction in output from domestic oil refineries. According to Deputy Prime Minister Alexander Novak, this has occurred due to unscheduled repairs at the refineries following drone strikes. Estimates suggest that the reduction in oil refining volumes has ranged from 20% to 30%. However, we are unlikely to purchase diesel fuel from abroad, as we produce it twice as much as we consume, and exports from Russia have been prohibited since July 9. Starting in July, Russia is importing gasoline, and these supplies will also be subject to the dampener. For imports from EAEU countries, a coefficient of 0.9 has been established, while a separate formula through import parity (with the Indian market) applies to supplies from other countries. Notably, given that compensation is partial, prices within Russia may rise if fuel prices on global markets reach record highs. Price increases have already impacted Europe. Diesel fuel has surged by an average of 14% since early July, while gasoline prices have risen by 10%. This escalation has occurred solely in response to news of renewed tensions in the Middle East, with a physical shortage yet to be felt. In India, prices remained stable in July, but, since the onset of the Iran-US conflict, they have risen by 7.8%. Initially, gasoline in India was substantially more expensive than in Russia. However, the matter isn't solely about the prices of imported gasoline and its availability. Import volumes are also crucial. Estimates suggest that the reduction in oil refining in Russia has varied from 20% to 25%. The country's monthly gasoline consumption is approximately 3 million tons. A significant volume of imports is sourced from Belarus, with June figures reaching 141,000 tons. Kazakhstan may supply Russia with about 50,000 tons of gasoline. Thus, our need for fuel from far abroad is unlikely to exceed 450,000 tons per month. Considering government measures (allowing a lower class of gasoline to be produced and production through blending) and the return of refineries from repairs, the volume of distant imports is expected not to exceed 300,000 tons. Consequently, the burden on the budget from fuel subsidies due to imports may rise slightly above 10% (considering the difference in coefficients). As pointed out in a conversation with "RG" by Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Association "Reliable Partner" and a member of the Expert Council of the "Gas Station of Russia" competition, we remain key suppliers of raw materials for all our potential fuel exporters. Moreover, the overwhelming majority of gasoline and diesel will continue to be produced in Russia; therefore, the crisis in Hormuz is unlikely to have a significant impact on domestic market prices. However, should global oil product prices continue to increase, this will inevitably be reflected in the Russian market. Regarding import availability, the expert does not rule out a potential reduction in gasoline supply on external markets. Yet, again, considering that we supply raw materials to fuel producers, it is unlikely to heavily impact Russia. While we are powerless to close the entire potential oil deficit completely, according to Sergey Tereshkin, CEO of Open Oil Market, the situation in the Middle East will affect India's access to oil imports. Last year, India imported 262 million tons of oil, with 36% (95 million tons) coming from Saudi Arabia, Iraq, and Kuwait—countries whose export potential is heavily dependent on shipping dynamics in the Strait of Hormuz. Additionally, 10% of supplies (26.7 million tons) were provided by the UAE, which can export about half of its oil production via the Omani Gulf, circumventing the Strait of Hormuz. The volumes of gasoline supplies to Russia from foreign countries are too small to affect its retail price.

According to Sergey Frolov, managing partner of NEFT Research, the primary foreign importers of fuel to Russia are Belarus, Kazakhstan, India, and China. Fuel is delivered to Russia by sea only from India and currently in limited volumes (estimates suggest shipments of 60,000-80,000 tons). This is negligible compared to the average monthly gasoline consumption in Russia of around 3 million tons, so there is no immediate concern regarding any impact these shipments may have on oil product prices in Russia. The primary mode of transport for supplies from other countries is rail, the expert specifies.

Frolov emphasizes that global gasoline quotations do not significantly affect Russia either, as national wholesale prices are formed based on the balance of supply and demand in the domestic market, while the retail fuel price is regulated by the state.

All the above remains valid under the condition that fuel imports will not be long-term, meaning domestic refineries will restore capacities within one or a maximum of two months. Should this not occur, or if unscheduled plant shutdowns continue, the effects of fuel imports will accumulate, potentially having a more serious impact on both domestic retail prices and budget revenues.

Queues at Gas Stations Are Decreasing: The Situation with Gasoline Is Normalizing in the Regions

The situation with gasoline is slowly but surely normalizing. According to correspondents from "RG" on the ground, in several regions, the limit on fuel release at refueling has been increased, with wait times for refueling reduced to ten minutes in some areas.

For example, in Udmurtia, gasoline supplies to municipalities have doubled, as reported by Prime Minister Roman Yefimov at an operational staff meeting. It's worth noting that just a month ago, nearly 50% of gas stations in Izhevsk were out of service, and motorists were waiting for hours. Now, wait times have significantly decreased. A key gas station network has increased supplies to rural areas. The "resupply" to the northern part of the region is underway. Current fuel supply levels are approximately equal to those of July last year, now exceeding by 7 to 10 percent to saturate the market.

The number of complaints is decreasing, but the issue remains more acute outside the Izhevsk agglomeration. Therefore, prioritization there is given to reserves for school buses and heating and ensuring operational services.

Agricultural producers purchasing fuel in bulk are receiving diesel through a single operator based on applications and quotas. The fuel issue for agrarians is expected to be resolved by July 20.
Refueling in canisters is currently prohibited: with 675,000 vehicles in the region, even 400,000 top-ups of gasoline at 10 liters would provide an excess of 12,000 tons—equivalent to nearly four trainloads—that could lead to a collapse.

Governor of Vladimir Alexander Avdeev reported that the region has managed to stop the growth of wait times at gas stations. On average, current wait times range between 20 to 40 minutes. Fuel companies have increased gasoline supply volumes, though the extent remains unspecified. Meanwhile, network gas stations have restrained price hikes “within recommended limits.” The specifics of these limits are not clarified. According to gas station locators, large operators are selling a liter of AI-95 for 67-73 rubles, while prices at private stations can reach up to 160 rubles.

In Vladimir region, wait times in line have decreased from several hours to 30 minutes.

Since July 14, gasoline supplies have also increased in Vologda region. PJSC "LUKOIL," which controls over 90% of gas stations in the region, has raised the fuel release limit per individual to 30 liters, as reported by the head of the region, Georgy Filimonov.

The company has cancelled technological breaks at gas stations—only maintaining them during tanker unloading—and has ramped up daily shipment volumes. Daily shipments are already saturating the market.

In Vologda, maximum support for drivers is being coordinated. Mayor Sergey Zhestyannikov reported that entrepreneurs and volunteers are assisting residents waiting to refuel. As such, they have distributed free hot pizza, muffins, and drinking water, with nearly 550 liters of water given away in a week.

Volunteers continue to stand by at the gas stations: directing traffic flows, advising drivers on where fuel is available, and assisting individuals with disabilities. Such community spirit demonstrates how the city can unite in difficult times.

Mayor of Cherepovets Andrei Nakroshaev noted that in the last two days, 13 fuel trucks have arrived in the city.

"Starting Thursday, a night shift of volunteers will be initiated in Cherepovets—this will allow us to maintain order and provide assistance to motorists around the clock," explained the city administration head.

City leaders are striving to normalize the operation of gas stations. Overall, authorities estimate that the region is gradually returning to previous supply levels and that adopted measures are effective. "Yesterday we refueled in Vologda on Preobrazhensky Street. There was no one in line in the morning, and we could refuel calmly," motorists noted on social media.

Our correspondent from St. Petersburg reports that in the Northern Capital, the queues at gas stations seem to have decreased as drivers have started actively using apps that indicate the availability or lack of gasoline at various gas stations, which has distributed the flow of those looking to fill their tanks. It turns out that gas stations in less trafficked areas often do not show up on the apps’ maps: our correspondent was able to refuel at one such station with a wait time of only 10 minutes and only three cars ahead. However, the 95-octane gasoline that was initially available was out of stock, leaving only the 92-octane option for about 65-67 rubles.

Source: RG.RU