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Running on Fumes: Populist Politics Have Helped Produce a Knee-Jerk Reaction to the Issue of Rising Gasoline Prices

Gas Pump Nozzle in Vehicle at Russian Gas StationAs the specter of a gasoline crisis spreads through Russia, Deputy Energy Minister Sergei Kudryashov today announced that the country would be imposing a ban on exports of gasoline for the month of May. While the government clearly hopes to direct gasoline toward the parched Russian market, the halt on exports seems to be a stop-gap measure designed to stabilize the situation while the government tries to figure out how to keep gasoline prices low and mollify incensed Russian drivers.

As early as last week, a gas crisis was developing in Russia's Altai Region, where local gasoline retailers were temporarily closing down and even large producers were limiting sales to specially chosen customers. Shortages have since spread to many regions in the country, producing long lines for gas, headaches for taxi drivers and bus companies, and presenting significant problems for independent retailers, who are saying that there is nowhere to buy gasoline at the moment.

"St. Petersburg has already not received the amount of gasoline it needs for four days," said Oleg Ashikhman, the head of the Gas Club of St. Petersburg, which represents independent gasoline retailers in St. Petersburg. "If this situation continues, within a week or two we'll be in a full-blown gas crisis."

For a leading producer of gasoline like Russia, the shortage and higher prices for fuel have come as a significant shock. Rising worldwide oil prices, prompted by disruptions in Libya and further unrest in the Arab world, have made exporting to Europe increasingly attractive for Russian gasoline producers. Government officials, and in particular Prime Minister Vladimir Putin, have strongly warned gasoline producers and retailers to maintain cheap prices for gas. "I don't want to think that the reason for the jump in prices is as trite as the wish to crudely extract an unreasonable, maximum gain," said Putin in mid-February.

Such statements from government officials are often recognized as a kind of informal regulation by oil and gas companies, said Elena Anankina, a senior director at the Standard & Poor's rating agency, and the companies may be willing to make some concessions on gasoline prices in order to maintain favorable terms for negotiation on crude oil and other products. Nonetheless, price caps will produce an expected, negative effect in any market.

"Officially, the government has no authority to regulate gas prices, but in a country like Russia where the government is an important factor in doing business, even if there is no legally binding power to that statement, oil companies need to listen to what the government is saying. At the same time, as anybody who lived in the Soviet Union will tell you, if prices are artificially low by government decree, it creates a shortage," said Anankina.

Politically, Putin's goal of keeping gas prices low follows the populist image that he has cultivated for himself and plays an important part in maintaining his high approval ratings. Yet those ratings have fallen slightly in recent months, and the United Russia party, of which Putin is a nominal leader, showed a more precipitous drop in regional elections earlier this year. Though a severe swing in support against United Russia is extremely unlikely, Putin has carefully avoided slashing social benefits or raising taxes on individuals in an election year.

But such populist policies also take their toll, and while Kudryashov today suggested that export tariffs may be raised, it is clear that the government is struggling to find a strategy to keep gas prices low. The government seems to have jumped into the short ban on gasoline exports without fully thinking through, or at least fully explaining, their longer term plans, said Maxim Moshkov, an oil and gas analyst at the UBS investment bank. "Right now they are starting to do non-systemic changes which they have not explained in much detail. I don't see quite what they are doing, but these are just temporary measures to limit the exports, which will of course have their own negative effects," he said.

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