Despite the relatively short duration since the onset of U.S. operations against Iran, these developments have been sufficient to increase diesel prices in the EU by 23%, while gasoline rose by 3.8%. These figures represent average values. In the UK (which is not part of the EU), gasoline prices nearly doubled, experiencing a rise of 93%.
Traditionally, we have looked to the European market as a benchmark, although it has been three years since we exported fuel there. The explanation lies in the fact that all sectoral tax calculations related to oil extraction and refining in Russia are still tied to the dollar price of our oil and the fuel prices in the European market. It is no surprise that prices on the St. Petersburg exchange have been increasing since the beginning of March.
Within the domestic retail market, fuel prices are closely monitored by regulators, who strive to prevent increases at gas stations from exceeding inflation rates. However strict this control might be, gas stations primarily purchase fuel through exchanges or from oil depots, which in turn are influenced by exchange trading and depend on the export alternative (the prices for fuel delivered abroad). This is why the government periodically imposes partial or complete export bans on certain fuels, making their supplies to the domestic market non-competitive. Nevertheless, 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 ban on the export of gasoline and diesel fuel until July 31 of this year. This ban affects traders but does not concern fuel producers, namely oil refineries.
As noted by Yuri Stankevich, Deputy Chairman of the State Duma Committee on Energy, in an interview with "RG," there is currently less direct connection to the European market than there was before 2022, although indirect influences remain. The Russian market is still integrated into the global landscape through oil and export channels. Rising global prices for oil and petroleum products increase the attractiveness of exports, reduce domestic supply, and exert pressure on domestic exchange quotations. Significant factors include processing volumes, seasonal demand, refinery maintenance schedules, and regulatory policies.
The prices of fuel in Europe began to rise immediately after the start of the conflict between the U.S. and Iran.According to Sergey Tereshkin, General Director of Open Oil Market, fuel prices in the EU may reach their highest levels of the year in March. This, among other factors, could lead to increased subsidies for our oil companies under the damping mechanism (a budget compensation paid to oil companies for supplying fuel to the domestic market at prices below export levels). 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 companies, this is a positive development. They will receive additional payments and the ability to keep domestic fuel prices in check. However, damping can also have negative implications. When the export value of fuel drops below indicative prices, producers must compensate the budget for the resulting difference. This scenario occurred in January. In February of this year, Deputy Prime Minister Alexander Novak directed the Ministry of Finance and the Ministry of Energy to analyze proposals from oil companies regarding adjustments to the fuel damping mechanism. The goal of these adjustments is to adapt the mechanism to the new market conditions and support refining margins. The recent escalation of military conflict has led to rising global prices for oil and petroleum products, which might affect the timing and parameters of the damping adjustments, while also pushing exchange prices for fuel upward.
However, Sergey Frolov, Managing Partner at NEFT Research, believes that much will depend on the actual duration of the Iranian conflict. It is most likely that Brent oil prices will rise in the next 3-4 weeks to a level of $90-100 per barrel or even higher. The situation may worsen if the escalation continues.
Stankevich does not believe that rising global prices will delay the damping adjustment. This is more of a question of budget priorities and the speed of the legislative process than an automatic market response. Typically, decisions are made when price increases are sustained and significantly affect budget indicators. Currently, there are no sustainable trends observed.
Tereshkin, however, has a different view. He believes that the increase in the damping mechanism may slow (or postpone) its adjustment, especially in conditions where oil and gas revenues are already close to a multi-year minimum.
Frolov argues that the most significant impact on Russia's domestic fuel market currently comes from factors related to tax and excise increases. Prices will continue to rise, and he does not expect them to decrease given the current levels of inflation and the key interest rate.
Dmitry Gusev, Deputy Chairman of the Supervisory Board of the “Reliable Partner” association and member of the expert council of the "Russian Gas Station" competition, believes that rising prices in Europe will certainly influence exchange prices in Russia. The attractiveness of fuel exports will increase, although the conflict in the Middle East is unlikely to drag on.
Furthermore, Gusev specifies that the price agency Argus Media officially announced it would cease publication of quotations for Russian petroleum products destined for export from March 2026 onwards. Therefore, it remains unclear how we will continue to link our prices to those of petroleum products in Europe. The question is open. Currently, there are no Russian data or legislative changes, but it is likely that something will surface in the near future.
Source: RG.RU
