Russia bans fuel exports as deliveries to military surge

Russia bans fuel exports as deliveries to military surge
Russian petrol stations are running dry as deliveries of fuel to the war surge. / bne IntelliNews
By bne IntelliNews September 22, 2023

Russia has temporarily banned the export of gasoline and diesel to all countries outside a group of four ex-Soviet states, with the aim of stabilising its domestic fuel market as supplies of diesel to the military surge.

Russia has significantly increased fuel deliveries to its military units near and inside Ukraine, reaching the highest levels since the invasion earlier this year, Bloomberg reports. These increased shipments come as the Kremlin intensifies its mobilisation efforts against Kyiv's ongoing counter-offensive.

A fuel crisis has engulfed Russia as a result of high international prices, a weaker ruble and a cut in subsidies to domestic refineries designed to encourage more domestic supply has led to outright shortages in some of the country’s southern regions, prompting government alarm.

The ban, effective immediately, excludes fuel supplied under inter-governmental agreements to members of the Eurasian Economic Union (EEU), including Belarus, Kazakhstan, Armenia and Kyrgyzstan. According to the Russian government, these temporary restrictions are designed to increase fuel supply within the domestic market, which has been suffering from shortages recently.

Petrol stations have been running dry in the last month, leading to spikes in wholesale fuel prices. Filling stations in Russia are currently loss-making, Vedomosti reported on September 7 citing data from Russian consultancy Petromarket, as a result of soaring wholesale prices for fuels.

To mitigate spiking prices at the pumps, retail fuel prices have been capped in accordance with official inflation rates. This fuel shortage has had a particularly significant impact on some regions of Russia, where fuel is essential for harvesting crops.

Various factors have contributed to the fuel market issues, including refinery maintenance, logistical bottlenecks and the depreciating value of the Russian ruble, which encourages fuel exports.

Bloomberg analysed railway data that reveals that gasoline, diesel and jet fuel deliveries to Russian Defence Ministry units in six regions bordering Ukraine, as well as the annexed Donetsk and Luhansk regions, amounted to nearly 220,000 tonnes in September. This volume is approximately four times higher than the same period last year and surpasses the shipments recorded in March, the first full month following the invasion. These figures include deliveries to four major airports in Russia's southwest, where civilian flights have been prohibited since the outset of the invasion in late February.

Russia has already reduced its seaborne diesel and gasoil exports by nearly 30% in the first 20 days of September compared to the same period in August. The government is also implementing measures like raising mandatory supply volumes of gasoline and diesel to commodity exchanges and closely monitoring fuel purchases for agricultural needs, adjusting volumes as necessary.

Last year, Russia exported approximately 4.817mn tonnes of gasoline and nearly 35mn tonnes of diesel. These export restrictions aim to address domestic fuel shortages and stabilise the market.

The surge in military fuel deliveries coincides with Ukraine's increasingly successful counter-offensive, posing a threat to Russian positions in the Kharkiv and Donetsk regions in the northeast and east of the country. In response to these developments, President Vladimir Putin ordered the partial mobilisation of approximately 300,000 reservists last month.

The actual total of oil-product deliveries for military purposes in Ukraine could be even higher than reported according to Bloomberg. The data does not encompass fuel flows via pipelines, as it doesn't distinguish between deliveries for civil and military applications.

The regions in Russia bordering Ukraine are known for their extensive agricultural areas, but the magnitude of this year's increase in fuel deliveries far exceeds the typical seasonal variations due to heightened demand from farmers. This uptick in fuel supply suggests a notable escalation in military activity in the region.


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