OUKRAINIAN CHICKENS aren’t talking about war, chances are they’re talking about gasoline. For the past three weeks, the country has found itself in the midst of a severe fuel shortage, meaning all but a handful of pumps across the country are closed to the public. On May 19, the 550 km road from Lviv to Kyiv had only two working gas stations. Each had a queue of several hundred meters. A station on the approach to the capital was also notable for being closed but frequented by more than 50 vehicles. A rumor had been circulating that deliveries could – only could – arrive in a few hours.
The war has made life impossible for Ukrainian energy planners, damaging critical infrastructure and breaking most supply chains. Before the start of the war on February 24, 80% of the country’s fuel was imported. Most of these goods came by rail from Belarus, now an enemy and participating in the war. A smaller portion arrived by sea, at Black Sea ports now closed by a Russian naval blockade. The only major local producer, the Kremenchuk oil refinery, was put out of service in April after a series of rocket attacks. Russian rockets have also destroyed a dozen fuel storage facilities and damaged railroad tracks, sometimes limiting what can be transported that way. Meanwhile, fuel requirements for military and emergency vehicles are increasing demand. The same goes for agriculture, which is currently in full sowing season. Ukraine needs about 540,000 tons of petroleum products per month. It currently only has the means to cover around 70% of that, according to Serhiy Kuyun, an independent energy expert. The war effort and agriculture being priorities, there is very little left for the others.
Deficits have spawned an underground economy in the best Ukrainian tradition. On the local equivalent of eBay, enterprising citizens offer a range of fuel-related services. In Odessa, 100 hryvnia ($3.38) per hour will get you someone to hold your place in queues outside gas stations, including a replacement car. In Kyiv, you can completely bypass the queues and use a dubious scheme to buy fuel using corporate accounts (the product sells for two to three times the official retail price). Then there is the direct sale of the liquid gold itself in any bottle or canister the racketeers can find (price to be negotiated over the phone). An advertisement, which solemnly promises “clean” fuel not mixed with methylated spirits, suggests that this is not a risk-free option.
Industry insiders are reluctant to make public statements that criticize the government’s handling of the crisis; it is not the thing done in time of war. But privately, they complain that officials have not been quick enough to react to shortages; they even exacerbated them, they say. A senior executive at a large private fuel company says price regulation means suppliers are asked to sell gasoline at less than it costs to supply it. The aim was to keep fuel affordable for a struggling nation, but it removed any incentive to increase supply to the public and also introduced a black market. “Our retail margins were 5% before the war, but the new supply chains erased that,” the manager said. “We kept asking for a compromise, but the response was that we made money during the good times and now was the time to be patient.”
The government initially attempted to defend its position, with ministers resorting to hard-hitting rhetoric. On May 14, Economy Minister Yulia Sviridenko denounced a handful of suppliers who openly flouted price controls – they were “looters” in wartime, she said. But just four days later, the cabinet reversed course and acknowledged the need to “temporarily” suspend controls, to allow retailers to regulate demand. Ms Sviridenko predicted that the move would lead to a 40% price increase, with unleaded petrol rising to 52 hryvnia per litre. Mr Kuyun thinks he is likely to end up higher, at more than 60 hryvnia per litre.
Rising prices will have an immediate impact on consumption in a country where disposable income is severely reduced. But it is unlikely that it alone will end the fuel crisis. Ukraine lacks the rail infrastructure to deliver enough gasoline from new markets in Europe, which operates on a different gauge. It has enough modern trucks to switch completely to road transport. But European carriers and their insurers are reluctant to step in, given the risks associated with transporting fuel in times of war. A government plan to ease the customs process with “green corridors” could help speed up deliveries, but is unlikely to reduce the deficit overnight.
Infrastructure Minister Oleksandr Kubrakov said resolving the crisis will require significant readjustment not only in Ukrainian fuel markets, but also in Europe. It was a “complicated” process that would take “several weeks or even months”. The raw data of the government’s response was remarkable, he insisted. But progress was always going to be “fragile,” and only as good as Russian rocketry would allow. “We can solve the supply and logistics problems, and the whole government is working every hour to achieve this,” he said, “but our main problem has not gone away, and that is war” .■
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