Despite the relatively short duration since the onset of the US operation against Iran, it has been sufficient for diesel prices in the EU to increase by 23%, while petrol prices rose by 3.8%. These figures represent average values. In the UK (not part of the EU), petrol prices have nearly doubled, increasing by 93%.
Traditionally, we have aligned ourselves with the European market, even though we have not supplied fuel there for three years. This is primarily due to our industry-specific tax calculations related to oil extraction and refining, which remain tied to the dollar price 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 aim to prevent prices at petrol stations from rising above inflation. However, regardless of the strict control, petrol stations primarily purchase fuel through exchanges or from oil depots, which are influenced by exchange trading, and these, in turn, rely on export alternatives (fuel prices for supplies abroad). For this reason, the government periodically implements partial or complete bans on the export of certain fuels, making domestic supplies non-alternative. However, such bans reduce the profitability of refining and could lead to a decrease in the production volumes of petrol and diesel in the medium term. Currently, a partial ban on the export of petrol and diesel remains in effect until 31 July this year; this prohibition affects traders only and does not apply to fuel producers, namely refineries.
As noted by Yuri Stankevich, Deputy Chairman of the State Duma Committee on Energy, in a conversation with "RG", our direct connection to the European market is now weaker than before 2022, although indirect links remain. The Russian market is still integrated into the global framework through oil and export channels. The rise in global prices for oil and petroleum products enhances the attractiveness of exporting, reduces domestic supply, and exerts pressure on internal exchange quotes. Significant factors also include the volume of refining, seasonal demand, repair schedules at refineries, and regulatory policy.
In Europe, fuel prices began to rise immediately after the outbreak of the US-Iran war.According to Sergey Tereshkin, General Director of Open Oil Market, fuel prices in the EU could reach their highest levels since the beginning of the year in March. Among other factors, this will lead to an increase in subsidies for our oil producers through a damping mechanism (budget compensation paid to oil companies for supplying fuel to the domestic market at prices below export rates). The size of these payments is directly proportional to the difference between the export alternative (in Europe) and the conditional domestic (indicative) price.
For oil producers, this is a positive development. They will receive additional payments and the opportunity to curb rising domestic fuel prices. However, the damping mechanism can also be negative. When the export price of fuel falls below the indicative prices, the oil producers must pay the budget the difference that has arisen. This occurred in January. In February of this year, Deputy Prime Minister Alexander Novak instructed the Ministry of Finance and the Ministry of Energy to analyse proposals from oil companies to adjust the fuel damping mechanism. The goal of the adjustment is to adapt the mechanism to new market conditions and support refinery margins. The outbreak of military conflict has caused global prices for oil and petroleum products to rise. On one hand, this may affect the timing and parameters of the damping adjustment; on the other, it could drive exchange prices for fuel upwards.
However, Sergey Frolov, Managing Partner of NEFT Research, believes that much will depend on how long the Iranian conflict lasts. It is most likely that Brent crude prices will rise in the next 3 to 4 weeks to the range of $90 to $100 per barrel or even higher. The situation will worsen if the escalation continues.
Stankevich does not expect that rising global prices will lead to a "delay" in the damping adjustment. This is more a question of budget priorities and the speed of the legislative process than an automatic market reaction. Typically, decisions are made when price increases are sustainable and significantly affect budgetary indicators. So far, such sustainable premises have not been observed.
Tereshkin has a different perspective. He believes that the increase in the damping mechanism may slow (postpone) its adjustment, especially under conditions where oil and gas revenues are already close to multi-year lows.
Frolov considers that the most significant influence on the domestic fuel market in Russia currently comes from tax and excise increases. Prices will continue to rise. Moreover, he does not expect them to fall given the current inflation levels and key rates.
According to Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association and member of the expert council for the "Gas Stations of Russia" competition, the price increases in Europe will certainly impact exchange prices in Russia. The attractiveness of fuel exports will increase, but it is unlikely that the conflict in the Middle East will drag on.
Furthermore, Gusev clarifies that the price agency Argus Media has officially announced that it will cease publishing quotes for Russian petroleum products supplied for export from March 2026. Therefore, it is not entirely clear how we will continue to align ourselves with petroleum product prices in Europe. This remains an open question. Currently, we do not have domestic data or any legislative changes, but most likely something will emerge in the near future.
Source: RG.RU
