Ukrainian attacks on Russian oil refineries: what is the impact?

Ukrainian attacks on Russian oil refineries: what is the impact?
Ukrainian attacks on Russian oil refineries: what is the impact?
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Drone attacks on Russian oil refineries and their economic impact have become one of the most successful Ukrainian campaigns.

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Last year was marked by widespread optimism regarding the Ukrainian war effort, but this year the exact opposite is happening, with a gloomy pessimism hovering over the information landscape. There are those who believe that both points of view were – and are – exaggerated.

Judging by the current trend of the war, Russia may have gained the upper hand. While this general trend may be reversed with the resumption of US aid to Ukraine, drone attacks on Russian oil refineries and their economic impact have become one of the most successful Ukrainian campaigns.

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As the war in Ukraine passes the two-year mark, the intensity of the armed conflict between Moscow and Kiev is not abating. While Russia is increasing bombings on Ukrainian front lines and missile attacks on the country’s energy grid, Ukraine has focused on drone attacks on Russian oil refineries and its Black Sea fleet. Both have different economic impacts.

Drone attacks against Russia

From January until the end of March, Ukrainian armed forces launched 23 attacks against Russian oil refineries and storage facilities. Washington has not supported the attacks, as they go against the Biden administration’s general strategy, according to which Ukraine should not take the war to Russian soil.

However, as Ukrainian President Volodymyr Zelenskyy recently stated in an interview with the Washington Post: “The US reaction was not positive… We used our drones. The US can only limit the use of the weaponry it supplied to Ukraine, Zelenskyy explained, which is not the case in the campaign against Russian oil infrastructure.

To date, Ukraine has temporarily shut down 16% of Russian motor fuel production. The Volgograd factory, for example, was seriously damaged and, according to Kommersant, its repair could last approximately until the beginning of summer. Others suffered no serious damage, such as the Ilsky oil refinery, which was repaired in less than a month.

Oil refineries play a crucial role in the Russian economy

These strikes will cause a lot of damage and it will be extremely difficult to get the refineries back up and running. Refineries depend on sophisticated technology and many imported components.”

Russian oil refineries play a crucial role in the country’s economy and its global energy presence. These refineries transform crude oil into various petroleum products, including gasoline, diesel and jet fuel, to satisfy both domestic consumption and international export markets.

As one of the largest oil producers in the world, Russia depends heavily on its refining capacity to maintain its position on the global energy landscape.

Ukrainian attacks on Russian oil refineries disrupted this vital sector, causing immediate production losses and infrastructure damage. These attacks not only target Russia’s economic infrastructure, but also constitute a strategic measure by Ukraine to retaliate against Russian aggression. As a result of the attacks, Russian refineries are facing operational challenges, leading to reduced production and supply chain disruptions.

“As Russia’s import capacity for refined petroleum products is limited in the short term once refineries are prepared to export, this is a very clever way to cause disruption in the Russian market with limited impact globally,” Aslak said. Berg, researcher at the Center for European Reform, told Euronews.

According to Berg, Ukraine’s strategy has so far been to attack Russian oil refineries and not Russia’s crude oil production facilities or export platforms.

“The Ukrainians have been attacking refineries and not Russian crude oil production or export facilities. This causes problems for the Russian domestic market for refined products, but for the rest of the world, the decline in Russian crude oil exports will be offset by increased crude oil exports,” Berg explained.

When US officials expressed their disagreement with this particular Ukrainian campaign, some analysts immediately assumed that this skepticism coming from Washington is linked to fears of a potential rise in US gasoline and diesel prices during an important election year.

Due to still limited global refining capacity, other refineries outside Russia may be limited in increasing their refining capacity and offsetting disruptions in Russia,” Giovanni Staunovo, raw materials analyst at UBS Global Wealth Management, told Euronews.

“Some market participants do not make the distinction or are concerned that drone attacks could also target crude export terminals in the near future. Therefore, we also see crude prices reacting,” said Staunovo.

Depending on the scope of the Ukrainian drone campaign, the negative impact that the attacks are having on the Russian domestic economy, which has already reduced exports of refined petroleum products from March 1 to satisfy domestic demand and avoid a scenario of rising prices. gasoline and diesel prices could change and have a greater impact on the world market.

Ukraine must be aware of the potential costs for the global oil market

Jens Nordvig, founder and executive director of Exante Data, explained the potential scenario to Euronews: “If these attacks continue and create difficulties in exporting crude, it would be logical to assume that we could see an increase of 5-10 in global oil prices, both due to the direct effect of supply and the additional uncertainty that is reflected in risk premiums, taking us up to 90 on Brent”.

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Ukraine has to strike a delicate balance between the desire to inflict as much damage as possible on the Russian economy and, at the same time, plan the attacks in such a way as to have the least possible impact on the world market for refined and crude oil.

At the same time, Kiev has to pay attention to how the market reacts to its drone strike campaign, because it has to take the interests of its partners into account. After all, Ukraine’s very existence depends on its diplomatic relations with its Western partners.

The article is in Portuguese

Tags: Ukrainian attacks Russian oil refineries impact

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