Since March, Ukrainian drone attacks have increasingly targeted oil refineries deep within Russia. Although these attacks have not yet reduced Russia’s crude oil export levels or significantly impacted the broader Russian economy, this dynamic could change as the war continues and Ukraine improves its drone attack capabilities. As a result, the Russia-Ukraine war remains a significant geopolitical source of volatility for global energy markets.
A New Dimension to the War
In early 2024, Ukraine began using domestically produced, long-range drones to target Russian oil refineries, attacking at least 16 facilities so far. A notable incident occurred on April 2, when the Taneco refinery complex, owned by the Tatneft group, was hit. Although Russia reported no disruption to output, the attack highlighted the extended reach of Ukrainian drones, with the facility located 1,300km (800 miles) from the front line. Another significant attack on March 23 temporarily halted production at the Kuibyshev refinery in the Samara region, demonstrating the disruptive potential of these strikes.
Changing Tactics
Ukraine’s production of relatively inexpensive yet effective drones, including those with extended ranges, indicates that attacks on Russian energy infrastructure will likely continue. Since 2022, Ukraine has boosted domestic weapons production through collaborations with global arms manufacturers and subsidies. Despite a commitment not to use Western-supplied weapons against Russian territory, Ukraine has explicitly admitted to targeting Russian refineries to disrupt military fuel supplies and reduce Russian oil revenues—a key income stream even amid sanctions.
Disruption to Refining Rates
These drone attacks have contributed to a decline in Russian exports of oil products like diesel, fuel oil, and naphtha. In early April, export volumes dropped to a post-pandemic low, with Russian oil processing levels nearing an 11-month low. Factors such as difficulties in performing maintenance due to sanctions, trade restrictions, and recent floods have exacerbated this decline. However, Russia has quickly restored crude-processing levels at most targeted facilities, except for the Tuapse refinery near the Black Sea.
Crude Exports Unaffected
Despite the attacks, Russian crude oil export levels have remained high, with an 11-month peak in mid-April. This resilience is partially due to Russia diverting crude destined for domestic refineries to overseas markets. However, Russia’s capacity to rapidly increase crude oil exports is limited by untapped processing capacity and a pledge to OPEC+ to cut exports and production.
Potential for Greater Disruption
As Ukraine improves its drone capabilities, the potential for greater disruption to both oil product and crude oil markets increases. If Ukraine successfully targets key refineries or oil export terminals, global energy markets could experience heightened volatility. However, robust Russian air defenses may mitigate the risk of such attacks on strategic assets.
Global Outlook
Overall, global oil markets will remain vulnerable to geopolitical tensions and regional conflicts in the coming year. The threat of oil supply disruption persists, particularly if there is an escalation in Ukraine or the Middle East. While Ukrainian attacks have impacted Russian oil product exports, broader geopolitical tensions and sustained production cuts by the OPEC+ group have also contributed to rising oil prices. Increased output by non-OPEC+ members, such as the US, Canada, Brazil, and Guyana, is expected to partially mitigate supply pressures in the coming months.