Mongolia's fuel shortage reaches Sukhbaatar Square as winter approaches

Mongolia's fuel shortage became a street protest on 1 October. News.MN reports that hundreds of people gathered at Sukhbaatar Square in central Ulaanbaatar, with drivers lining their cars along both sides of the square and sounding their horns. Bloomberg describes motorists leaving their cars and marching near parliament. Protesters' complaints went beyond fuel to taxes, food prices, higher electricity, heating and water tariffs and government spending. The government lifted fuel rationing in August, but queues at Ulaanbaatar's filling stations remain long.

How the shortage built up

Mongolia has no refinery and imports nearly all its petrol and diesel from Russia. Analyst Maximilian Hess, writing in Brussels Morning, puts Russia's share at some 97%. Ukrainian drone strikes on Russian refineries have cut Russian output, and Hess cites refinery runs of about 3.6 million barrels a day in July, the lowest since 2002. Moscow has banned most petrol and diesel exports but exempts countries with intergovernmental supply agreements, Mongolia among them. In practice, Mongolia keeps its supply on terms Moscow controls.

Supply has fallen short of demand all summer. On 3 August the government restricted drivers to filling up on alternate days according to their number plates and capped purchases; the measures were lifted on 18 August after Moscow agreed to send an extra 25,000 tonnes of petrol and 5,000 tonnes of jet fuel. At the peak, Bloomberg reports, drivers waited up to eight hours and stations limited sales to 50,000 tugrik (about $14) per motorist. A food ministry official told Reuters in early September that fuel prices had risen to $1.5–2 a litre, from about $1 in the spring. Bloomberg, citing central bank data, reports that fuel imports have fallen since April and in July were about a quarter lower than a year earlier.

Demand is the other half of the problem. Mongolia imported close to 2.7 million tonnes of petrol and diesel in 2025, about five times its 2005 level, and demand is growing by up to 14% a year, according to The Diplomat. As of 5 August the country held 11–13 days of petrol, 18 days of diesel and 10 days of jet fuel. Successive governments have promised reserves of three to six months and missed that target.

More Russian diesel, but on Moscow's terms

Russian deliveries have picked up. Traders told Reuters that diesel shipments to Mongolia rose to about 215,000 tonnes in August from 124,000 tonnes in July. Mongolia remained the largest buyer of Russian diesel in Central Asia, Afghanistan and Mongolia combined, taking about half of the 2.5 million tonnes shipped there in January–August. For January–July, traders put Russian diesel supplies to Mongolia at 1.05 million tonnes, up 7%, and petrol at 515,000 tonnes, up from 450,000 tonnes. In late August Moscow extended its diesel export ban to the end of September while keeping the intergovernmental carve-outs.

Ulaanbaatar has also looked elsewhere. Mongolia's industry minister negotiated with South Korea's GS Caltex in July, the prime minister met PetroChina's local subsidiary on 7 August, and talks with Kazakhstan continue, according to Hess. Bloomberg reports that Russia has committed 25,000 tonnes of additional fuel and that Mongolia has asked China for 71,000 tonnes of petroleum products a month. Each alternative supplier must still move fuel overland into a landlocked market with little storage. In the Chinese case, as Hess notes, one dependency would replace another.

Cost and credit are further constraints. Diesel and petrol made up roughly a third of Mongolia's imports in 2025, Hess writes, and that was largely discounted Russian fuel. Commercial traders have reason to be cautious: in October 2024 Trafigura disclosed misconduct in its Mongolian petroleum products business, with a reported loss of $1.1bn. Hess argues that the tools Mongolia most needs are trade finance guarantees and political risk cover that would let Korean or Gulf suppliers sell into Ulaanbaatar, rather than more minerals diplomacy.

What the state is building

Two projects address the underlying weakness, and neither helps this winter. On 24 September Montsame reported that San Petroleum, with government support, had completed a 16,000-cubic-metre fuel storage facility able to unload 14 rail tank cars at once. The government's 2024–2028 action plan calls for reserves equal to three to six months of consumption. At the India-financed refinery, the 56.6-metre crude distillation column has been installed, and the government plans to start operations in December 2027, according to a report carried by open.kg. The Diplomat and Hess have both given 2028 as the expected start date. Engineers India Limited is project management consultant and Megha Engineering Infrastructures the general contractor.

Prices, power and the winter test

The macroeconomic cost is showing. The Bank of Mongolia kept its policy rate at 12.5% in mid-September after raising it in August. Annual inflation was 12.5% in August and core inflation 6.8%, and the bank warned that fuel prices, government spending and wages could push inflation up again. The economy grew 7.7% in the first half, led by mining and transport. Those are the sectors most exposed to diesel supply.

Winter adds a second energy constraint. Energy Minister Badrakh Naidalaa told parliament's HUN Party caucus that winter preparations were 79% complete. He said peak electricity demand is projected at 1,956 MW next year against installed capacity of 1,836 MW, with the gap to be covered by imports from Russia and China. He also warned of a shortage of heat this winter, with Ulaanbaatar's thermal power plants running above their capacity. Funding for a fifth thermal power plant has been included in next year's budget.

What to watch

• Whether Moscow renews its diesel and petrol export bans beyond September with the Mongolian carve-out intact, and at what volumes.
• Whether Chinese and South Korean supply arrives at the monthly volumes requested, and at what landed price.
• How quickly the new storage is filled, and whether the government publishes reserve levels in days of consumption.
• Whether the 1 October protest grows into a wider movement over prices and tariffs as heating season begins.

Sources

• News.MN — Fuel shortage sparks protests in Mongolia
• The Star (Bloomberg) — Mongolia's fuel shortage sparks protest as drivers wait in lines
• Brussels Morning — Steppe-ing carefully: Mongolia's business environment makes finding a way out of the energy crisis harder (Maximilian Hess)
• Yahoo News (Reuters) — Mongolia bears brunt of Russia's fuel crunch, official says
• Hydrocarbon Processing (Reuters) — Russia boosted diesel exports to Central Asia in August
• The Diplomat — Mongolia's fuel crisis is a demand problem, not just a supply one
• Montsame — Fuel storage capacity expanded with new 16,000-cubic-meter facility
• open.kg — Mongolia will overcome its dependence on gasoline in 460 days
• Montsame — Bank of Mongolia keeps policy rate at 12.5 percent
• The Star (Go Go Mongolia/ANN) — Thermal energy shortage expected in Mongolia this winter