Summary
In July, Mongolia entered a fuel crisis that brought the government to impose a temporary personal daily purchase limit of MNT 50,000. On August 5th, the country claimed it had 17 days of gasoline reserves left. As Mongolia imports its majority of refined oil from Russia, the fuel shortage is mainly due to supply disruptions from Russia and an internal increase in fuel demand due to summer tourism and the recent Naadam festival. While these issues are existent, they do not fully explain the shortage. Mongolia has been building trade relationships with third neighbour countries such as South Korea and Kazakhstan, and holds over 330 million tonnes of crude oil reserves on its own soil, suggesting that the crisis may be the consequence of poor internal coordination.
Key Points
- Mongolia has more than 330 million tonnes of oil reserves, but no operational refinery, meaning that all the crude oil is exported.
- Mongolia imports 97% of its refined petroleum products from Russia, and the rest from China.
- South Korea and Mongolia have reached an agreement on 30th July for South Korea to send 50,000 tons of petroleum each month, which could cover 33% of the gasoline demand.
- In April 2026, Mongolia and Kazakhstan signed 18 cooperation documents including a memorandum on oil sector cooperation, with Kazakhstan agreeing to work towards supplying petroleum products.
- Mongolia has started the construction of a domestic refinery in 2018, due to be finished by 2028.
Analysis
Mongolia has been importing almost all its refined oil products from Russia for decades, and the dependency was consolidated in April 2026, as the two countries signed a 15-year aviation fuel agreement. However, the ongoing war between Ukraine and Russia, which caused the supply of fuel to be inconsistent, revealed that this dependency gives Mongolia only short-term supply stability and long exposure to shifts in the Russian economy.
In its diversification efforts, Mongolia, with Indian financing, started building its first refinery in 2018, scheduled to be finished in 2028. Nevertheless, the refinery faced delays due to administrative and financing issues, the ministry of finance announced that internal reforms are needed to allow the refinery to be operational by its scheduled deadline.
Mongolia has additionally reached agreements with China, South Korea as well as Kazakhstan to import petroleum products, and the EU, through the renewable grid investment plans, is making efforts to support the country in the transition to green energy. This means that Mongolia is actively building relationships with third neighbours’ countries. However, poor railway conditions and insufficient storage facilities, make it challenging for Mongolia to build a coherent diversification plan, and make these supplies a suitable alternative to Russian imported fuel in practice.
Overall, these projects, although individually promising, lack an international coordination plan which would allow the country to maximise on them. Indeed, all the agreements proceed at independent speed and without a sequenced strategy that connects them, each fuel crisis is solved by relying on Russia, as demonstrated on August 11, when announced that Russia will send 25 thousand tons of gasoline by the end of the month.
Policy implications
- Agreements with Kazakhstan and South Korea must be supplemented by a clear coordination plan and investment in internal transport infrastructure. Without a long-term plan to build rail links and storage facilities, these agreements risk remaining ineffective on the ground.
- Building internal refinery capacity represents the most viable long-term solution. However, as the refinery delay has demonstrated, this route is only viable if Mongolia can overcome its internal administrative and financing challenges, which cannot be predicted.
- Finally, as Mongolia shares its borders with Russia and China, any diversification agreements with third countries should be developed with careful consideration of its relationships with both neighbours. Reducing dependency on Russia without destabilising broader economic relationships will be the defining diplomatic challenge of Mongolia’s energy transition.
Further Readings
Adiya A. (2025) ‘Mongolia’s Fuel Shortages Reveal a Deeper Energy Crisis’, Mongolia Weekly. Available at:https://www.mongoliaweekly.org/post/mongolia-s-fuel-shortages-reveal-a-deeper-energy-crisis
Altashagai T. (2026) ‘Mongolia’s risky fuel strategy gamble’, East Asia Forum. Available at: https://eastasiaforum.org/2026/06/24/mongolias-risky-fuel-strategy-gamble/
World Energy Council (2025) Mongolia. Available at: https://www.worldenergy.org/assets/downloads/Asia_Trilemma_MONGOLIA_Profile_Template.pdf