oil at higher prices ought to be the stuff of dreams for a petrostate. But for Russia it is a sign of a new, punishing phase in its war with Ukraine. Months of Ukrainian drone strikes on refineries have crimped Russia’s ability to produce refined fuels, such as diesel and petrol, and turned the world’s third-largest oil producer into an importer of petrol. Energy firms have tried to pare their losses by selling unrefined oil overseas, pushing exports to a ten-month high in March.
In Ukraine’s most recent attack on April 2nd, its planners extended their reach. They managed to land explosives on a refinery 1,115km from the border. Their attack set fire to a unit responsible for 3% of Russia’s refining capacity. Although it left no lasting damage, others have been more successful. All told, Ukraine’s barrage has knocked out a seventh of Russian refining capacity, according toGlobal, a data firm.
Although Ukraine’s attacks have slowed since Vladimir Putin’s re-election in March, Ukraine has given no indication that they will stop. It can lob drones faster and more cheaply than Russia can repair its refineries. Some facilities, like therefinery in the city of Nizhny Novgorod, have been particularly slow and expensive to fix, in part because access to equipment is stymied by Western sanctions.
The consequences for Russia’s public finances should be limited, even though oil revenues represent 34% of its budget. Rosneft, the state oil company, will dispense a smaller dividend if it cannot make up its lost revenues, but many doubt these dividends make it to state coffers at all. The government will even save some cash by paying out fewer per-barrel subsidies to refineries. Russia’s biggest money-earners are resource taxes.
Observers outside Russia are watching to see if Ukraine’s attacks will affect the global oil market. They have yet to have much impact, but the price of Brent crude has risen by 19% this year to just under $90 a barrel, owing to+ supply curbs, better-than-expected global economic conditions and disruptions in the Red Sea. Few observers have more at stake than Joe Biden, who faces an election in November.