Report: Russia expects refinery fuel subsidies to fall 39% by 2027

Media reports citing the 2027-2029 budget draft and related documents submitted to the State Duma state that the Russian government's state subsidies to oil refineries to ensure domestic fuel supply are expected to decrease from an estimated 1.93 trillion rubles this year to 1.18 trillion rubles in 2027. Fuel subsidies for 2028 and 2029 are projected to be 801 billion rubles and 812 billion rubles, respectively. Fuel subsidies are calculated based on the difference between export prices and the base prices stipulated in Russian tax law. Under current regulations, if the wholesale market price of gasoline in Russia does not exceed 20% of the base price, and diesel does not exceed 30%, the government has a legal obligation to pay subsidies. Once the above thresholds are exceeded, refineries will be unable to receive state subsidies. Media reports indicate that the Russian government has also submitted amendments to the Russian tax law, raising the base prices for gasoline, diesel, and aviation kerosene used in the state subsidy calculation formula. According to the fuel subsidy formula, all else being equal, the increase in base prices could result in a reduction of approximately 1,460 rubles per ton in the calculated subsidy value for gasoline next year, and approximately 1,330 rubles per ton for diesel. Aviation kerosene fuel subsidies for airlines could be reduced by approximately 1,070 rubles per ton.