Despite the relatively short time since the start of the US operation against Iran, diesel fuel prices in the EU have surged by 23%, while gasoline prices have risen by 3.8%. These are average figures. In the UK (not part of the EU), gasoline prices have nearly doubled (a 93% increase).
We traditionally align our pricing with the European market, even though we have not supplied fuel there for three years. This is because all industry tax calculations related to oil extraction and refining are still linked to the dollar value of our oil and fuel prices in the European market. It's not surprising that prices on the St. Petersburg stock exchange have been rising since the beginning of March.
In retail, the Russian domestic fuel market is under strict scrutiny from regulators, who aim to prevent gas station prices from exceeding inflation levels. However, regardless of the stringent controls, gas stations mainly purchase fuel through the stock exchange or at oil depots, which are aligned with stock trading. These prices are influenced by export alternatives (fuel pricing for overseas shipments). This is why the government periodically introduces partial or complete export bans on certain fuels, making domestic supplies the only option. However, such bans reduce the profitability of oil refining and may lead to decreased production volumes of gasoline and diesel fuel in the medium term. Currently, there is a partial export ban on gasoline and diesel fuel in effect until July 31 of this year, which affects traders but not fuel producers, such as refineries.
As noted by Yuri Stankevich, Deputy Chairman of the State Duma Committee on Energy, in a conversation with "RG," there is now less direct connection to the European market than before 2022, but indirect links remain. The Russian market is still integrated into the global market through oil and export channels. The rise in global prices for oil and petroleum products increases the attractiveness of exports, reduces domestic supply, and puts pressure on local stock exchange quotes. Factors such as processing volumes, seasonal demand, refinery maintenance schedules, and regulatory policies also play significant roles.
The price of fuel in Europe began to rise immediately after the onset of the US-Iran conflict.According to Sergey Tereshkin, CEO of Open Oil Market, fuel prices in the EU may reach their peak for the year in March. This will, among other things, result in increased subsidies for our oil producers through the damping mechanism (a budget compensation provided to oil companies for supplying fuel to the domestic market at prices lower than export prices). The size of these payments is directly proportional to the difference between export alternatives (in Europe) and the conditional domestic (indicative) prices.
For oil producers, this is a positive outcome. They will receive additional payments and the ability to contain the rise in internal fuel prices. However, the damping mechanism can also be negative. When the export price of fuel falls below the indicative prices, oil producers must pay the difference to the budget. 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 analyze proposals from oil companies regarding adjustments to the fuel damping system. The aim of the adjustment is to adapt the mechanism to the new market conditions and support refining margins. The recent outbreak of military conflict has led to an upward trend in global oil and petroleum product prices. On one hand, this may influence the timing and parameters of the damping adjustment; on the other hand, it could push stock exchange fuel prices upward.
However, managing partner of NEFT Research, Sergey Frolov, believes that much will depend on how long the Iranian conflict actually lasts. It is most likely that Brent oil prices will rise to the level of $90-100 per barrel or even higher in the next 3-4 weeks. The situation could worsen if the escalation continues.
Stankevich does not believe that the rise in global prices will result in a “delay” in adjusting the damping mechanism. This is more a matter of budget priorities and the pace of legislative processes than an automatic reaction to the market. Typically, decisions are made if price increases are persistent and significantly impact budget indicators. So far, there are no clear persistent indicators of this.
Conversely, Tereshkin holds a different view. He believes that rising damping may slow (or delay) its adjustment, especially when oil and gas revenues are already near multi-year lows.
Frolov argues that the most significant influences on the internal fuel market in Russia currently stem from tax and excise increases. Prices will continue to rise, and he does not expect a decrease given the current inflation and key interest rate levels.
According to Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association and a member of the expert council for the Russia’s Gas Station Competition, the price increases in Europe will certainly affect stock exchange prices in Russia. The attractiveness of fuel exports will rise, but it is unlikely that the conflict in the Middle East will drag on.
Additionally, Gusev notes that the price agency Argus Media has officially announced that it will cease publishing quotes for Russian petroleum products destined for export starting in March 2026. Therefore, it remains unclear how we will continue to tie ourselves to petroleum product prices in Europe. For now, the question remains open. We currently lack Russian data and there have been no changes in legislation; however, it is likely that something will emerge soon.
Source: RG.RU
