Informed sources said that the Russian government is considering reducing the support it provides to oil refineries, while it is looking for ways to cut public spending in light of the increasing military spending on the war in Ukraine.

According to data from the Russian Ministry of Finance, the Russian government spent last year 2.17 trillion rubles ($26.6 billion) to compensate oil refineries for the difference between the basic price for selling fuel in the domestic market and its theoretical value if it were exported to Europe.

During the first quarter of this year, the refining companies received government support worth 253 billion rubles.

Bloomberg quoted the sources as saying that with the increasing pressure of the Russian war in Ukraine, which has entered its second year, on the Russian budget, the government is considering increasing the basic price of gasoline and diesel, in subsidy formulas, by 50%.

Increasing prices will reduce the value of subsidies and the government may reach a stage where refiners can pay money to the public treasury if selling prices in the domestic market exceed export prices to Europe.

According to the sources, the government hasn’t reached a final decision regarding the size of the increase in fuel prices for the consumer or whether the subsidy account formula will be changed.

If the proposal is implemented, it will devour the profits of Russian oil companies because the government says it aims to keep the rate of increase in fuel prices within the inflation rate, and therefore no increase in prices is immediately passed on to consumers.

For its part, the press office of the Russian Finance Ministry said it doesn’t discuss such proposals, while the Energy Ministry didn’t respond to Bloomberg’s request to comment on this issue.

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