By Oleksandr Levchenko
The Russian authorities are seeking to offset problems in the fuel market at the expense of the population, effectively shifting part of the costs borne by oil companies onto ordinary citizens. According to media reports, Russia’s Ministry of Energy has proposed allowing a further increase of 2.1 rubles per litre in retail petrol and diesel prices. The proposal was outlined in a letter to Prime Minister Mikhail Mishustin signed by Deputy Prime Minister Alexander Novak.
According to the Ministry of Energy, selling imported fuel at current prices generates losses of 13–18 rubles per liter for oil companies, even after state compensation is taken into account. The ministry is considering two options to address the problem: additional budget payments of up to 2 billion rubles per month in exchange for a price increase of 1.6 rubles per litre, or a 2.1-rouble increase without additional budget expenditure. The Ministry of Finance and the Russian government support the second option, which could generate approximately 12 billion rubles in additional monthly revenue for oil refineries.
If implemented, the initiative could bring the cumulative increase in petrol prices at major oil companies’ filling stations to 11% by the end of 2026, equivalent to 7.1 rubles per liter. Diesel prices could rise by 10.7%, or 8.2 rubles per liter.
Problems in Russia’s fuel market have intensified amid the ongoing war against Ukraine, strikes on oil-refining infrastructure, sanctions and rising costs of importing petroleum products. Despite its substantial domestic crude oil reserves, Russia is being forced to compensate for shortages of certain fuel products through foreign purchases. According to the estimates cited, petrol imports could reach 620,000 tonnes per month between October and December 2026.
The proposed price increases would effectively shift part of the cost of addressing the fuel crisis onto consumers. Higher diesel prices would also increase the cost of freight transport and agricultural production, adding further pressure to the prices of everyday goods. The consequences of the war are therefore becoming increasingly apparent in the living standards of Russian citizens: the state is seeking to protect the profitability of strategically important companies while intensifying inflationary pressure on households.
Russian metallurgy: Wage arrears and a deepening crisis
Russia’s metallurgical industry is facing deteriorating financial conditions, accompanied by wage arrears, reduced bonuses and cuts in salaries. Sanctions, weak domestic demand and high borrowing costs are exacerbating the sector’s difficulties, as it remains dependent on domestic market conditions and export opportunities.
According to media reports, employees of the Chelyabinsk Metallurgical Plant, part of the Mechel Group, have complained of systematic delays in salary payments, sick leave benefits and holiday pay. Some employees have yet to receive their wages for September. Following numerous complaints, the labour inspectorate has launched an investigation into the company. Similar problems have emerged at another group asset, Mechel-Materials.
At the SMK-Kulebaki plant in the Nizhny Novgorod Region, management has acknowledged wage arrears exceeding 82 million roubles. Employees have also reported salary cuts of more than 50%. Wage delays have likewise been reported at metallurgical enterprises in the part of Donbas occupied by Russia.
These payment problems reflect a broader downturn in the industry. According to the figures cited, domestic consumption of metal products fell by approximately 14% in 2025, while production declined to its lowest level in 15 years. In the first half of 2026, Mechel recorded losses of 41.5 billion rubles, while Severstal’s net profit fell by 61% over the first nine months of the year.
The combination of weak demand, expensive credit and export restrictions increases the risk of further debt restructuring and corporate bankruptcies. For companies, this means mounting pressure to cut costs; for employees, it means a greater risk of income loss and deteriorating working conditions. More broadly, the difficulties facing the metallurgical industry demonstrate how wartime expenditure and structural imbalances in the Russian economy are increasingly affecting civilian sectors.
Moscow faces a growing budget deficit
Even Moscow, which has one of the strongest tax bases among Russia’s regions, is facing a widening budget deficit. Moscow Mayor Sergei Sobyanin has submitted to the Moscow City Duma a draft budget for 2027 and the planning period of 2028–2029. The document points to a widening gap between the city’s revenues and expenditure.
Under the draft budget, Moscow’s deficit is projected to reach 448 billion rubles by the end of 2026 and could rise to 651 billion rubles in 2027. At the same time, the city authorities plan to reduce spending across eight of the city’s 13 programs. The cuts will affect education, urban development, transport, culture, tourism, sport, urban planning policy and other areas.
Tax revenues account for more than 90% of Moscow’s budget income. Under the draft, tax receipts are expected to total 5,380.5 billion rubles in 2027, 22.5 billion rubles less than in 2026. Against this backdrop, the widening deficit points to greater reliance on borrowing and rising future debt-servicing costs.
Moscow’s budgetary situation has implications beyond the capital. Declining revenues and the need to reconsider expenditure indicate that financial constraints are tightening even in Russia’s wealthiest regions. If this trend continues, the city authorities will have less room to sustain infrastructure projects, social programs and other spending commitments without increasing the debt burden.
Inflation constrains monetary easing
Accelerating inflation is forcing the Central Bank of Russia to maintain tight monetary conditions, limiting the prospects for a return to cheaper credit. On 23 October, Bank of Russia Governor Elvira Nabiullina announced that the key interest rate would remain at 14% per annum. This was the second consecutive decision to keep the rate unchanged following the September pause, which interrupted the easing cycle that began in June 2025.
The main reasons for the decision were accelerating price growth and persistently high inflation expectations among households and businesses. According to the forecasts cited, inflation could reach 7.6% by the end of 2026, almost twice the central bank’s 4% target.
One of the key drivers of inflationary pressure is supply-side disruption, including the temporary loss of some oil-refining and logistics capacity. According to the figures cited, seasonally adjusted current price growth accelerated to 8% in the third quarter of 2026, up from 4.8% in the second quarter, while core inflation reached 6.2%. The forecast for annual inflation has been revised upwards to 7.1–7.6%, compared with the previous range of 6–7%.
High inflation expectations among households remain an additional complicating factor, reaching 13.7% in August. This increases the risk that consumers and businesses will continue to factor anticipated price increases into their decisions on pricing, procurement and wages.
At the same time, lending activity among businesses and households remains strong. In August, the outstanding corporate loan portfolio grew by 1.3%, while the forecast for annual growth in lending to organizations was raised to 9–12%. In September, the volume of newly issued cash loans reached 471.9 billion rubles, 50% higher than in the corresponding period of 2025. The combination of strong demand for credit and persistent inflationary pressure makes it more difficult for the central bank to curb price growth without excessively slowing economic activity.
Fiscal policy creates additional risks. Analysts estimate that the federal budget deficit could reach 6.8–7.2 trillion rubles by the end of the year, equivalent to 3–3.1% of GDP. Regional budgets, excluding the Moscow region, have already recorded a combined deficit of 26 billion rubles. The need to finance substantial public expenditure while containing inflation further narrows the scope for monetary easing.
The Central Bank’s updated forecast envisages an average key interest rate of 14.6% in 2026 and 12.5–13.5% in 2027. Inflation is not expected to return to the 4% target until 2027. Meanwhile, projected GDP growth remains modest, at 0.5–1% in 2026 and 1–2% in 2027.
Russia’s economy therefore risks remaining in a prolonged period of expensive borrowing, with limited prospects for investment-led growth. High interest rates will make corporate financing more difficult, constrain industrial modernization and increase the burden on heavily indebted companies. Businesses with access to government funding or the capacity to adapt to high capital costs will be comparatively better positioned.
Taken together, problems in the fuel market, the downturn in metallurgy, widening regional budget deficits and persistent inflationary pressure point to increasingly severe structural constraints on the Russian economy. The war against Ukraine is not only increasing direct government expenditure but also deepening economic imbalances, with the costs of addressing them increasingly being passed on to households and civilian businesses.
Oleksandr Levchenko is a Ukrainian diplomat, independent analyst and professor at the State Tax University in Ukraine. He served as Ukraine’s ambassador to Croatia and Bosnia and Herzegovina (2010–2017) and as a consul in the Federal Republic of Yugoslavia (1993–1997). During the war, he has written some 5,000 articles on Russia’s aggression against Ukraine for online media outlets in nine countries.
Written for CIVIL Today.
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