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Business News/ Economy / Kremlin’s Latest Battle Is With Russia’s Oil Companies
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Kremlin’s Latest Battle Is With Russia’s Oil Companies


Rosneft executives have been pushed out as the Kremlin and the country’s oil companies squabble over profits versus stability in the domestic energy market.

A Rosneft facility near the town of Neftegorsk, Russia. Oil is the country’s most important industry.Premium
A Rosneft facility near the town of Neftegorsk, Russia. Oil is the country’s most important industry.

Russia, one of the world’s biggest oil exporters, is suddenly running low on fuel at home.

The shortages are causing heightened tensions between the Kremlin and Russia’s oil companies, including the ousting of executives at state-controlled Rosneft Oil, which is run by a close ally of President Vladimir Putin, Chief Executive Igor Sechin.

The drama came to a head when rocketing fuel prices, particularly in southern agricultural heartlands, led Russia’s government to bar diesel and gasoline exports this month. The blockade delivered relief to Russian businesses as domestic prices tumbled after the ban kicked in. Diesel markets rose in the rest of the world, threatening to worsen an energy-price surge.

Unlike in 2022, when Moscow cut natural-gas exports to inflict pain on Europe, this blockade aims to limit the economic and political fallout of high prices at home.

Russia’s internal fights are an unexpected twist alongside the war on Ukraine.

The supply shock shows the mounting economic cost of waging the war, though analysts said it isn’t severe enough to hamper the army.

The government and Russia’s oil companies—which form the country’s most important industry—are at odds over the balance between profits and stability in the domestic energy market.

The companies of late have been receiving payments worth billions of dollars to encourage them to sell more fuel at home. The government appears to have been exerting more pressure on them to prioritize domestic supplies without having to pay them to do so, in part to help in the fight against inflation.

The internal dynamics of Russian energy politics are notoriously opaque. While some of the debates have been aired in public, other aspects have played out in private.

Rosneft recently fired trading chief Marat Zagidullin, people familiar with the matter said. One of them said he was escorted from his office by security.

Also leaving their posts were the heads of chemicals sales, Nikita Pakulin and Andrey Dobryakov, as well as finance executive Alexander Polyakov. Zagidullin, Pakulin, Dobryakov and Polyakov couldn’t be reached for comment.

The departures stemmed from Rosneft’s need to hold people responsible for the shortages, in part to bring an end to the blame game in Moscow, the people said. Though executives often come and go at Rosneft, the recent churn is unusual, some of them said.

A Rosneft spokesperson said information included in questions from The Wall Street Journal “has no connection with reality. Staff rotation in the company is aimed solely at improving its efficiency for the benefit of shareholders. In other cases, it may be due to personal decisions of employees who have completed their employment obligations to the company."

The efforts to curb the payments come as Putin’s government faces a toxic mix of galloping inflation, a weak ruble and labor shortages.

The payments, called dampers, partially compensate companies such as Rosneft for sales of petroleum products on the domestic market. Sales at home, where the government pressures suppliers to keep a lid on retail prices, are often much less profitable than exports. Companies such as Rosneft, Gazprom Neft and Lukoil run large refining operations as well as drilling for crude.

Moscow dolled out huge compensation payments after the invasion of Ukraine thanks to the surge in international energy prices and the slide in the ruble. That plumped up Rosneft’s profits—which by one measure rose almost 10% in 2022—but at the cost of draining the public finances and contributing to a budget deficit.

“Suddenly they were having to pay billions of dollars a month to the refiners to compensate them for effectively a cross-subsidy from international markets to domestic markets," said Ronald Smith, senior oil and gas analyst at BCS Global Markets. “It became untenable."

Before the pandemic, the government transferred as little as $400 million a month to oil companies, according to Citigroup analysts. During lockdowns, the companies actually reimbursed the state. After the invasion the government transferred as much as $2.7 billion each month, or a fifth of the Ministry of Energy’s budget.

The government moved to cut damper payments in half from this month. The companies fought back. They exported more oil and products overseas, analysts say, while shutting some refiners for longer than normal to avoid sales at home.

Further sapping supplies, according to analysts, are independent traders who bought fuel in the Russian wholesale market and exported at higher foreign prices. Supply cuts by Russia and Saudi Arabia have sent global diesel prices higher, making that trade attractive.

“The companies decided they were not getting enough on the domestic market and this is why they preferred to export crude and whatever they can in the form of diesel," said Mikhail Krutikhin, an independent energy analyst. “As a result, there are some shortages. It started in Crimea, then it spread out across southern Russia."

Moscow intervened by banning most exports of diesel and gasoline last week. The government didn’t say when the restrictions would end.

A longstanding ban would have big implications for global fuel supplies. Russia makes up about 15% of the international seaborne diesel market, according to UBS Group. It is a smaller gasoline exporter.

Analysts at Capital Economics said the ban would raise crude prices because refiners in the rest of the world would have to run harder to make up for lost Russian fuel.

Government officials blamed so-called gray exports of diesel bought at home and sold abroad.

“Unscrupulous participants purchase goods on the domestic market and export them because the difference between the domestic price and the export price is substantial," Deputy Energy Minister Pavel Sorokin told the State Duma last week, according to Interfax news agency. He didn’t specify who these participants were.

The immediate beneficiary of the export ban is Russia’s agriculture industry. Rising fuel prices had eroded profit margins for farmers just starting to plant the winter crop—though they haven’t dented harvest levels, said Andrey Sizov, managing director of SovEcon.

Wrangling over the shortages played out, to some extent, in public. A day before the government issued the ban, Alexander Dyukov, CEO of state-owned Gazprom Neft, told reporters that any levies designed to stabilize the domestic market were likely to backfire, according to state newswire TASS.

The ousting of Rosneft trading chief Zagidullin was a surprise because of the company’s success in finding new overseas buyers and sidestepping sanctions.

A key aim of Western sanctions has been to limit Russia’s income from oil exports, which is the biggest contributor to state revenue. Russia has confounded those efforts. It found new buyers, traders, shipowners and insurers. The prices Russia gets for oil exports have vaulted above U.S.-imposed caps, boosting the state coffers.

Over the summer, Rosneft struck deals to sell a substantial portion of its output to a group of previously little-known traders in an auction. On the back of that success, the company is about to run a new auction for petroleum that will be shipped next year, people familiar with the matter said.

All the while, though, another problem has been brewing at home. Domestic fuel supplies are politically charged, particularly in the run-up to elections such as the presidential ballot that is scheduled to take place early next year.

“It was not even an issue of the price, but of actual availability of the fuels," said Sergey Vakulenko, a nonresident scholar at the Carnegie Russia Eurasia Center. The problem “was exacerbated by the government attempts to control prices—making the oil companies selling their product below market value," he added.

Write to Joe Wallace at, Anna Hirtenstein at and Costas Paris at

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