Moscow, Russia – In a move likely aimed at curbing domestic gasoline prices ahead of upcoming elections, Russian President Vladimir Putin has approved a temporary ban on gasoline exports for six months beginning March 1st.
The export ban, which does not apply to fellow Eurasian Economic Union member states, is expected to help stabilize rising gasoline costs within Russia by limiting external supply demands. Prices at the pump have surged in recent months, squeezing Russian consumers already dealing with high inflation and a struggling economy amid continued fallout from the war in Ukraine.
In order to offset excessive demand for petroleum products, it is necessary to take measures to help stabilize prices in the domestic market,” Deputy Prime Minister Alexander Novak wrote in a letter proposing the gasoline export ban. Novak, one of Putin’s most trusted energy advisors, has been tasked with overseeing Russia’s vast oil and gas sector.
The export ban comes just weeks before Russia’s presidential election on March 15th, in which Putin is widely expected to extend his more than two-decade grip on power. Keeping gasoline affordable has become a priority for the Kremlin, wary of any domestic unrest that could threaten Putin’s re-election bid.
Supply Constraints Driving Up Prices
Russia produced around 44 million tons of gasoline in 2023, exporting roughly 13% of that to foreign buyers. Top importers included several African nations like Nigeria and Libya, as well as the United Arab Emirates.
But maintaining adequate supply to meet growing domestic demand has proven difficult in recent months. Output disruptions due to infrastructure damage, sanctions limiting access to equipment and widespread maintenance delays have all contributed to tighter gasoline inventories.
“Russian refineries have struggled with manpower shortages and procurement challenges that have forced some unplanned maintenance downtime,” said Anna Rizatdinova, an energy analyst with SberCIB Investment Research in Moscow. “This has squeezed gasoline production just as demand rebounded post-pandemic among both motorists and agricultural sectors.”
The Omsk refinery operated by state-run Gazprom Neft, Russia’s third largest gasoline producer last year, underwent an unscheduled maintenance outage for most of December. Technical troubles also idled a key gasoline-making unit at Lukoil’s Nizhny Novgorod refinery, the number two producer, for several weeks in January and February.
Meanwhile, smaller disruptions from drone attacks and equipment malfunctions have rippled across the refining sector.
Government Intervention to Blunt Price Spikes
Pump prices have reacted swiftly to the worsening supply-demand imbalance. The average retail cost for a liter of 95-octane gasoline has spiked nearly 20% since the start of 2023, according to Russia’s Federal Statistics Service.
Analysts say the price surge has made gasoline affordability a contentious political issue. “There is pressure on the Kremlin to intervene and ease the economic pain facing average Russians from rising fuel costs,” said Tatiana Stanovaya, founder of political advisory firm R.Politik.
Stanovaya expects the export ban to shave at least 10-15% off current gasoline prices, providing relief to consumers in the run-up to next month’s presidential vote. Putin is widely predicted to extend his rule until 2036, although the legitimacy of the election has been questioned by Western nations.
This isn’t the first time Moscow has restricted fuel exports to combat high domestic prices. A similar six-month ban on gasoline exports last fall helped stabilize pump prices following a 30% run-up earlier in 2022.
Impact on Global Gasoline Markets
Russia’s absence from gasoline export markets for the next six months could have ripple effects on fuel prices worldwide. The country shipped over 1.3 million barrels per day of gasoline overseas last year, making it a top-five exporter globally.
Analysts say the loss of Russian barrels on international markets could contribute to tighter gasoline supplies and higher prices, especially with demand rising seasonally into the summer driving season.
“This export ban will pull Russian fuel cargos off the global market at a time when inventories are already low in many regions,” said Norbert Rücker, head of economics at Swiss commodity trading firm Julius Baer.
Hardest hit could be emerging markets like Algeria, Ghana and Pakistan that relied heavily on Russian gasoline imports and have limited ability to replace those supplies.Fuel shortages, rationing and higher prices at the pump could ensue, economists warn.
More vulnerable countries may need to turn to alternatives like Iran and Venezuela, despite their isolation from Western energy markets due to sanctions. China could also step up gasoline exports in the coming months to alleviate global shortfalls.
Next Steps and Outlook
The ban on Russian gasoline exports, while currently temporary, could end up being extended beyond the initial six-month period. Analysts say maintaining stable domestic supply and prices is likely to remain a priority for the Kremlin through 2023 and into 2024.
“Given ongoing challenges sustaining production at Russian refineries, I’d expect the export ban to remain in place for the rest of the year,” said Dmitry Marinchenko, a senior director at Fitch Ratings in Moscow.
For now, the ban offers Putin a chance to show Russian voters his administration is taking action to ease economic pressures. But economists caution that deeper structural factors like sanctions, decreasing oil revenue and diminished foreign investment will continue exacerbating Russia’s economic turmoil.
“While helpful in the short-term, restricting exports won’t fully insulate Russian consumers from rising costs across the board,” said Olesya Kuznetsova, an economist at JP Morgan in Moscow. “Inflation is still painfully high and real incomes are falling sharply – that is the economic reality Russians will face both before and after the March election.”
