Putin’s war machine risks running out of fuel, so Russia is banning the export of gasoline and diesel

Russia’s leader has tried to keep the daily lives of Russians insulated from the worst impacts of his expansionary campaign in order to minimize risks to political stability. But with all resources at their disposal directed at maintaining the war effort, wholesale prices for the two fuels have reached record levels in recent months, according to state news agency TASS. 

Since it has no choice but to fuel its military machine operating across the border in Ukraine—a necessity if it hopes to repel Kyiv’s ongoing counteroffensive—Moscow will instead divert the supply that would have gone abroad to prevent shortages back home.

“The decision was made to stabilize fuel prices in the domestic market,” the Russian government said in a statement on Thursday, adding it would monitor the situation for the country’s food producers daily.

The surprise ban, which won’t affect several former Soviet republics including close Kremlin ally Belarus, could indirectly put pressure on the price at the pump for American consumers by lifting benchmark futures prices across the globe. 

Agriculture Minister Dmitry Patrushev earlier this month proposed temporarily banning fuel product exports to avoid a “catastrophe” this harvest season, according to the Moscow Times.

“Temporary restrictions will help saturate the fuel market, which in turn will reduce prices for consumers,” the government added. 

The effect was immediate, with prices for Russia’s wholesale gasoline delivery contracts falling by a tenth on the St. Petersburg Mercantile Exchange, while prices for diesel fell by 7.5%, according to Reuters. 

Unusual ban

The ban, which went into effect as soon as it was published on Thursday, is unusual as Russia is one of the most resource-rich countries in the world, with vast deposits of oil and natural gas across a landmass that spans 11 time zones.

Energy exports are also a vital source of government revenue, with the sale of petroleum products and natural gas contributing 45% to Russia’s federal budget in 2021, the year prior to Putin’s invasion. 

Countries like China, India and Turkey are likely to be hit the most, since the trio have effectively replaced Europe barrel for barrel as the prime destination for Russian oil and gas supplies.

By comparison, the Group of Seven industrial nations—which include the U.S., Japan and U.K.—as well as the entire European Union agreed to ban the import of refined petroleum products from Russia last year.

Nevertheless prices may still rise in sanctioning countries as most Russian crude and petroleum products can eventually be unloaded onto third-party ships where they can be made untraceable once blended with other fossil fuels.

On Thursday, European wholesale diesel gained 5% to trade back above $1,000 a metric ton, according to Bloomberg News.

“On a global scale, world prices for diesel fuel are already at elevated levels due to rising oil prices and a lack of refining capacity. Restrictions on Russian fuel exports could aggravate this problem,” Finam analyst Alexander Potavin told TASS.

Together with Saudi Arabia, Russia has unilaterally cut oil production recently in a bid to underpin global prices for a barrel of crude.