Russia's gains from higher oil prices eaten up by burning refineries

Russia's payments to oil refiners in May were close to their highest level in more than 2 years, reducing the country's oil and gas revenues even though the war in Iran helped drive up oil prices.

Source: Bloomberg

Details: Last month, the government paid oil refiners US$2.8 billion. This was almost 5 times more than a year earlier.

These payments partly compensate refineries for the difference between motor fuel prices in Russia and abroad. They rose sharply after a rally on global markets caused by the war in Iran.

The subsidies are critical for Russian fuel producers, which have been hit by near-daily Ukrainian drone attacks over the past several months.

Strikes on refineries have already pushed Russia's refining volumes to their lowest level in more than 16 years, increased crude oil exports and forced the government to impose a ban on jet fuel exports in addition to restrictions on petrol.

Without the multibillion-dollar payments, the Russian budget would have gained more from the jump in the price of Urals, the country's key export crude grade.

Background:

• Drones operated by Ukrainian Special Operations Forces (SOF) struck a major oil pipeline control station on a large oil pipeline in Russia's Kirov Oblast, as well as an oil depot in Rostov Oblast, on the night of 30-31 May.
• A fuel crisis has been escalating in Russia amid continued Ukrainian strikes on oil refineries, with shortages of motor fuel similar to those previously reported in the temporarily occupied city of Sevastopol and Crimea now spreading to Russia's capital region.

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