Cut in Russian oil production looms as 20% of export capacity disabled by Ukrainian drone strikes

Ukraine’s recent spate of drone strikes targeting Russian oil refineries, storage facilities and ports have reduced the country’s fuel export capacity by around 20%, Reuters reported on Thursday, citing three industry sources.

Though that figure is down from the approximately 40% reduction in fuel export capacity reported on 25 March, the damage done to Russia’s oil infrastructure means that its remaining facilities are now overloaded, with storage facilities filling up rapidly.

As a result, some oil fields will be obliged to reduce their output, the sources told Reuters. Russia’s oil pipeline agency Transneft, which transports 80% of the country’s oil exports, has already warned it is unable to accept the full quota of fuel from producers planning to ship their exports through the Baltic port of Ust-Luga, which was badly damaged in a Ukrainian drone strike last week.

In addition to the damage done to the port of Ust-Luga, Russia’s two other major oil facilities in the Baltic at Primorsk and Kirishi were forced to reduce operations last week after Ukrainian drone strikes.

A reduction in levels of oil production by Russia, the world’s second-largest exporter, would exacerbate the already tense outlook for global energy markets, which are already reeling from supply disruptions caused by the war in the Middle East.

As Russian oil is taxed not on the basis of export volumes, but at the wellhead during extraction, the cash-strapped federal budget also stands to lose out if oil producers are forced to cut production, with four years of international sanctions and vast military spending on the war in Ukraine taking their toll.