Russia Hikes June Subsidies to Refiners as Fuel Shortages Bite

Russia's government paid 204.3 billion rubles ($2.8 billion) to oil processors in May, a nearly fivefold increase from the prior year and close to April's high of 207.5 billion rubles. This significant payout highlights the financial strain on the state budget as it attempts to stabilize the refining sector. These subsidies, part of Russia's "damping mechanism" and tax rebates, aim to compensate refiners for domestic sales and support operations, but they have substantially dented the nation's oil and gas revenues.

The increased subsidies are a direct response to a worsening fuel crisis across Russia, with at least two-thirds of the country's regions experiencing fuel rationing or supply disruptions. Ukrainian drone attacks on Russian oil refineries have been a primary cause, leading to nationwide gasoline shortages, long queues at pumping stations, and concerns about accelerating inflation. Average gasoline prices surged 1.7% in a single week in late June, following the biggest weekly increase in at least 20 years.

The financial impact on Russia's budget is substantial. In April and May combined, Russian oil companies received over 716 billion rubles ($9.95 billion) in state support. These payments amounted to roughly 40% of the mineral extraction tax revenue collected from the oil sector in May and approximately 46% in April. While oil and gas revenues increased 34% year-on-year in May, cumulative energy revenues for the first five months of 2026 remain 30% lower than the same period last year, largely due to these growing refinery support payments. Analysts note that this effectively neutralizes the benefits of stronger oil prices.

To address the acute shortages, Russia has begun importing gasoline from India, with at least 60,000 metric tons already dispatched and plans to import 400,000 tons monthly from various countries, including Belarus. The Russian parliament has also approved tax code amendments to subsidize fuel imports. Despite these measures and the substantial state support, gasoline prices continue to climb, with AI-92 gasoline up 30% and AI-95 gasoline up 38% since the beginning of the year. Retail fuel prices have officially risen 4.77% in the first five months of the year, exceeding the pace recorded in any year since the full-scale invasion of Ukraine in 2022.