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Russia's government is mulling over fuel subsidy cuts or a windfall tax for the oil industry in a bid to offset the sharp drop in oil and gas revenues amid the Western sanction push following Moscow's invasion of Ukraine.
Bloomberg cited unnamed sources as saying one of the options to boost income was to change the formula that the authorities use to calculate the level of subsidies that Russian refiners receive for supplying fuels to the domestic market.
The subsidies last year came in at some $26.6 billion—quite a substantial sum. In order to shrink them, the government could revise the discount of flagship Urals to Brent crude or, alternatively, it could increase the base fuel price it uses in the formula by up to 50 percent, the sources told Bloomberg.
The other option, according to Bloomberg sources, was to tax oil companies with a one-off levy for the profits they made last year amid the price surge in oil following the invasion.
Earlier this week, Deputy Prime Minister Alexander Novak said the Russian government was discussing changes to the way subsidies are granted to refiners, Reuters reported, adding that the changes, once agreed, will then be submitted to the lower house of parliament, the Duma.
Also, Novak said this week that the European Union's introduction of exemptions to Russian oil imports was evidence those imports were still in demand in the EU, despite the embargoes.
The remarks followed an update on the price cap regime the EU follows, according to which the cap stops applying to oil products after those products are put into free circulation in a country other than Russia.
"This once again emphasises that our oil products are in demand in Europe, once European politicians indicated that their actions defy any logic and take such decisions and think how to get out of this situation," Novak said.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com
While the unprecedented Western sanctions against Russia, bans against its exports and an oil price cap have failed miserably to make even the slightest dent on Russian exports, fears of a banking or financial crisis resulting from the collapse of few American commercial banks caused oil prices to fall thus affecting every oil-exporting country in the world. Russia isn’t an exception.
In such a situation, Russia like other oil exporters will have to look for ways to offset the drop in revenues including fuel subsidy cut or a one-off windfall tax on oil companies.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert