Calming the Public or Catering to Oil Giants? The Government is Seeking a Compromise
Pausing the cancellation of fuel subsidies for oil companies may temporarily delay domestic price increases, but it cannot solve all problems
According to an order signed by Russian President Vladimir Putin, Russia will suspend the cancellation of the fuel subsidy mechanism (топливный демпфер) for gasoline and diesel from October 1, 2025, to May 1, 2026.
Under this subsidy mechanism, the government provides subsidies to petroleum refining companies to encourage them to supply more gasoline and diesel to the domestic market rather than for export. In return, the oil companies receive compensation for the price difference between domestic and export prices. However, if domestic fuel prices rise too much, the subsidy mechanism will be canceled.
According to current tax laws, if the monthly wholesale price of fuel deviates by a certain margin from the set benchmark price (for gasoline, the benchmark price is 60,450 rubles per ton, with a deviation of over 10%; for diesel, the benchmark price is 57,200 rubles per ton, with a deviation of over 20%), oil companies will not be eligible for subsidies. As a result, the relevant fiscal subsidies have dropped sharply from 80.4 billion rubles in August to 30.5 billion rubles in September.
The aforementioned presidential decree also stipulates that during the same period, the excise tax on winter diesel produced by non-petroleum refineries (НПЗ) will be exempt — this type of diesel is made by mixing summer diesel with aviation kerosene at other locations (including small refineries or oil depots).
As early as this summer, exchange prices for petroleum products began to rise rapidly. In mid-July, the government discussed expanding the allowable deviation range for benchmark prices by 5 percentage points. By mid-August, Deputy Prime Minister Alexander Novak ordered the Ministry of Energy and the Ministry of Finance to make retroactive adjustments to the relevant indicators starting from August 1. He later stated that the government was preparing to expand the allowable deviation range for benchmark prices by 10 percentage points from September 1.
In late August, exchange prices for fuel slightly declined, but then rose again in early September. Over the past three months up to October 13, the wholesale price of AI-92 gasoline increased by 16% to 74,207 rubles per ton; the price of "Premium-95" gasoline increased by 12.5% to 80,031 rubles per ton. According to data from the Russian Federal State Statistics Service (Росстат), the weekly increase in retail gasoline prices was 0.85% from September 30 to October 6, compared to 0.8% from September 23 to 29.
In mid-September, Alexander Yuzhkov, CEO of "Gazprom Neft", proposed that in case of force majeure, the government should have the authority to suspend the cancellation of the fuel subsidy mechanism. He stated that there are times when the subsidy mechanism cannot function properly, and it is not realistic to consider all scenarios to perfect the mechanism.
On October 9, during a meeting chaired by Novak, representatives of the oil industry requested the government to consider implementing the above suspension mechanism.
Russian government has already taken several measures to maintain stability in the fuel market. As of the end of 2025, Russia has imposed a ban on exports of gasoline for all companies and a ban on exports of diesel, marine fuel, and other light petroleum products for companies that do not produce petroleum products.
Stanislav Mitrokhovich, chief expert at the Russian Fund for Energy Security and the Russian Financial University under the Government, told "SP" that the latest measures were concessions made by the government to businesses.
"The fuel subsidy mechanism could have been retained through retroactive adjustments in September, but ultimately the government saved 50 billion rubles — because oil companies can continue to profit through crude oil exports."
"However, if oil companies continue to be unable to receive subsidies, theoretically they may have the incentive to raise domestic prices and profit from Russian consumers to maintain profits. However, the issue of a fuel crisis is highly sensitive socially, so it is better not to let the situation escalate to a critical point, even if it requires some financial expenditure."
"Overall, this measure may temporarily delay domestic price increases, but it cannot solve all problems, as it essentially involves choosing among the three parties: 'consumers - enterprises - budget'."
"If the budget lacks funds, the government cannot invest in citizens' safety and healthcare. Conversely, if enterprises lack funds, they lose their development momentum, stop petroleum refining operations, and the quality of gasoline will decline, leading to potential fuel shortages in certain regions. Therefore, the government is trying to find the right balance."
"Free News": After pausing the cancellation of subsidies, how much subsidy funding would oil companies likely receive?
Mitrokhovich: "Considering the drop in international oil prices, it is unlikely that oil companies will be able to get 200 billion rubles in subsidies as before. In August, the oil industry received 80 billion rubles in subsidies, and theoretically, they could expect a similar amount in October, which is already quite a good level of subsidies at the current situation."
"It should be noted that the current subsidy mechanism only applies to AI-92 gasoline. In Moscow, the mainstream fuels are AI-95, AI-98, and AI-100, so this measure is largely aimed at the regions."
"Free News": Why is the excise tax being exempted for some winter diesel?
Mitrokhovich: "The government's move is also to avoid risks. Otherwise, there could be a rapid increase in prices and local shortages, so even if it means a reduction in tax revenue, these issues must be prevented from occurring."
"Previously, the government's main approach was to prioritize extracting funds from the petroleum industry and other export industries, but the current policy orientation is to have all economic sectors contribute to the budget."
"Related to this, the government has chosen to increase taxes instead of relying on ruble depreciation (the ruble exchange rate remains relatively stable). At present, the situation of oil companies is still normal, and this state is reasonable — because if this crucial industry faces difficulties, the overall situation would only get worse."
Original: https://www.toutiao.com/article/7560735303636468260/
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