Key facts
- Ukrainian strikes on Russian energy infrastructure are causing widespread fuel shortages.
- Two-thirds of Russia's regions are experiencing fuel supply issues, with Crimea under a state of emergency.
- Rising fuel prices are contributing to inflationary risks, influencing the Central Bank of Russia's cautious approach to interest rate cuts.
- Russia's military spending is consuming a significant portion of its budget, depleting welfare fund assets.
Russian President Vladimir Putin's efforts to shield the population from the economic impact of the war in Ukraine are being undermined by recent Ukrainian missile and drone strikes on critical energy infrastructure. These attacks have led to fuel shortages in approximately two-thirds of Russia's 83 regions, causing immediate inconvenience and threatening businesses.
The situation is particularly severe in Crimea, where a state of emergency has been declared, leading to a collapse in tourism. Putin has acknowledged the problem but downplayed its severity, while also claiming Russian strikes are more damaging to Ukraine.
Russia has stopped publishing domestic fuel price data, but social media indicates widespread issues, including drivers clashing over gasoline. India, a major buyer of Russian crude, is reportedly exporting refined products back to Russia, highlighting the domestic supply crunch. Analysts suggest Ukraine is targeting refinery units like catalytic crackers, which are difficult for Russia to replace, indicating a prolonged shortage.
While diesel supplies remain adequate, Russia has banned exports of jet fuel and gasoline and may extend this to diesel to ensure sufficient supply for the harvest season. The rising fuel prices are a significant inflationary concern for the Central Bank of Russia, which has opted for a cautious approach to interest rate cuts. Governor Elvira Nabiullina has clashed with figures like Sberbank CEO German Gref, who argues for faster rate reductions.
Mounting economic problems are increasingly linked to the war. Military and classified spending now constitutes nearly half of the government's total expenditure, leading to a sharp decline in the National Welfare Fund's liquid assets. This suggests that Russia's financial resources, like its fuel supply, are becoming increasingly strained.