Why Ukraine Should Keep Striking Russian Oil Refineries


On January 19, a Ukrainian drone struck an oil depot in the town of Klintsy, in Russia’s western Bryansk region, setting four gasoline tanks on fire and igniting some 1.6 million gallons of oil. Later that week, another strike lit a fire at Rosneft’s oil refinery in Tuapse, a Russian city some 600 miles from Ukrainian-held territory. In March, Ukrainian drones hit four Russian refineries in two days. April began with a Ukrainian drone attack on Russia’s third-largest refinery, located deep in the region of Tatarstan, around 800 miles away. The month ended with strikes on facilities in two more Russian cities, Smolensk and Ryazan.

In all, Ukraine has launched at least 20 strikes on Russian refineries since October. Ukrainian security officials have indicated that the attacks’ objectives are to cut off fuel supplies to the Russian military and slash the export revenues that the Kremlin uses to fund its war effort. By the end of March, Ukraine had destroyed around 14 percent of Russia’s oil-refining capacity and forced the Russian government to introduce a six-month ban on gasoline exports. One of the world’s largest oil producers is now importing petrol.

But the Biden administration has criticized the attacks. In February, Vice President Kamala Harris urged Ukrainian President Volodymyr Zelensky to refrain from targeting Russian oil refineries out of concern that the strikes would drive up global oil prices. Echoing that sentiment, Secretary of Defense Lloyd Austin warned the Senate Armed Services Committee in mid-April that the “attacks could have a knock-on effect in terms of the global energy situation.” Instead of striking oil infrastructure, Austin told the committee, “Ukraine is better served in going after tactical and operational targets that can directly influence the current fight.”

Washington’s criticism is misplaced: attacks on oil refineries will not have the effect on global energy markets that U.S. officials fear. These s​trikes reduce Russia’s ability to turn its oil into usable products; they do not affect the volume of oil it can extract or export. In fact, with less domestic refining capacity, Russia will be forced to export more of its crude oil, not less, pushing global prices down rather than up. Indeed, Russian firms have already started selling more unrefined oil overseas. As long as they remain restricted to Russian refineries, the attacks are unlikely to raise the price of oil for Western consumers.

Yet they can still inflict pain inside Russia, where the price of refined oil products, such as gasoline and diesel, has begun to surge. The strikes are achieving the very objectives that Ukraine’s Western partners set but largely failed to meet through sanctions and a price cap on Russian oil: to degrade Russia’s financial and logistical ability to wage war while limiting broader damage to the global economy. Kyiv must take wins where it can, and a campaign to destroy Russia’s oil-refining capacity brings benefits to Ukraine with limited risk.

TARGETED STRIKES

Ukraine has so far concentrated its attacks on Russian oil refineries, not oil fields or crude oil export infrastructure. The distinction is important. After oil is extracted from a well, it is transported through pipelines and other infrastructure to refineries, where it is converted into products to be distributed to end users. In 2023, Russia extracted an estimated 10.1 million barrels of oil per day. Of this, around 50 percent was exported to refineries abroad, and the remaining 50 percent was refined domestically, creating products such as gasoline, diesel, aviation fuel, and chemical feedstocks. Half these refined products were consumed domestically, with a substantial proportion diverted to fuel the Russian war machine. Russia also sells refined oil products abroad—the country was responsible for around ten percent of the world’s seaborne exports in 2023—but most Western countries have already stopped importing refined Russian fuel. The top destinations for Russia’s refined oil products are Turkey, China, and Brazil, though Russia has also been selling fuel to North Korea, in violation of UN sanctions, in exchange for munitions.

The Ukrainian strikes have dealt a significant blow to Russia’s refining capacity, knocking out up to 900,000 barrels per day. Repairs will be slow and expensive, in part because refinery stacks—where oil is distilled into its constituent parts—are huge and complex pieces of equipment that take years to design and build, and in part because Western sanctions are hampering Russian firms’ access to specialized components.

Russia’s oil storage capacity is limited. When a refinery is destroyed or damaged, therefore, extracted crude oil cannot simply be stocked for later use. This leaves Russian producers with just two options: increasing exports of crude oil or shutting wells and reducing production.

Both options are painful for Russia, but increasing exports is less so than scaling back extraction. Russia can sell its oil only to select countries, including China, India, and Turkey, whose facilities are equipped to use the specific oil grades produced in Russia. These countries thus have leverage over Russia to buy at lower-than-market prices. Once the oil is refined, however, the final products can be sold internationally—meaning that Russia must pay market price to meet its domestic and military fuel needs.

Attacks on Russian oil refineries will not have the effect on global energy markets that U.S. officials fear.

If Russia chooses to shut wells instead of increasing exports, the global oil price would indeed rise—the outcome the Biden administration seeks to avoid. But Russia would then face an even sharper increase in the cost of refined products, only with lower export revenues to cushion the blow. It was not surprising, then, when Russia’s First Deputy Minister of Energy Pavel Sorokin suggested in March that Moscow would choose the first option and divert more crude oil for export.

Data from recent months confirm that, as expected, Russia is exporting more crude oil at the same time that its refined fuel exports have hit near-historic lows. Moscow exported just over 712,000 tons of diesel and other petroleum products in the last week of April, a drop from more than 844,000 tons in the same week in 2023. Monthly exports of crude oil, however, increased by nine percent from February to March, reaching their highest level in nine months and their third highest since Western sanctions on Russian crude oil took effect in December 2022. The strikes have had no discernible effect on international crude oil prices, which remained stable until the end of March, when Russia cut its output under a preexisting agreement with OPEC.

Western markets may not be hurting, but Russia is feeling the pinch. Since the Ukrainian strikes began, diesel production has fallen by 16 percent and gasoline production by nine percent. The average weekly wholesale price of gasoline and diesel in western Russia rose by 23 percent and 47 percent, respectively, between the end of 2023 and mid-March. In April, the cost of gasoline hit a six-month high, up more than 20 percent from the start of the year. Russia imported 3,000 tons of fuel from Belarus in the first half of March—up from zero in January—and the Kremlin has been forced to ask Kazakhstan to ready 100,000 tons of gasoline for supply in case of shortages.

So far, Russian consumers have been largely shielded from these wholesale price increases. But in the last week of April, retail diesel prices jumped by ten percent. This lag suggests either that oil companies are earning slimmer margins, at the expense of their oligarch owners, or that the Kremlin has raised public fuel subsidies, diverting money it could have spent on the war in Ukraine. According to some reports, the Russian government may also consider lifting restrictions on low-quality gasoline usage to prevent a fuel shortage, a move that risks damaging engines, placing further strain on an already weak military vehicle maintenance capacity and rendering void the warranties of foreign-made vehicles. Altogether, the political, economic, and military costs are mounting for the Kremlin as the strikes on oil refineries continue.

GOOD STRATEGY

Ukraine’s campaign is working. It is inflicting pain on Russian energy markets, and it is putting exactly the kind of pressure on Moscow that the U.S.-led sanctions regime was designed for but has had limited success in delivering.

In the early months of the war, the Biden administration assembled a coalition of countries to impose economic penalties on Russia, including a price cap on Russian crude oil exports. The idea behind the price cap was to set it high enough that Russia would keep oil flowing, helping avoid a global recession, but low enough to depress Russia’s export earnings. In practice, inconsistent enforcement and monitoring have undermined the price cap’s effectiveness: Russia’s federal revenues hit a record $320 billion in 2023. The price cap may also have been set too high. A recent assessment by the Center for Research on Energy and Clean Air, a Finnish think tank, determined that a lower rate could have slashed Russia’s oil export revenues by 25 percent between December 2022 and March 2024 without pushing Russian companies to shut off the taps. The EU and G-7 shipping industry, meanwhile, is still deeply entwined with Russia’s exports. In March this year, 46 percent of Russian oil shipments were carried on ships owned or insured in G-7 and EU countries, and some Western tankers have continued to transport oil priced above the cap.

Ukrainian strikes on Russian oil refineries are now doing what the sanctions regime has not. Without compromising global energy supply or driving up prices, the attacks are eating into Russian revenues and curtailing Russia’s ability to turn crude oil into the kinds of fuel that tanks and planes need to run. As long as Ukrainian forces avoid hitting crude oil pipelines or major crude oil export terminals, they can maintain this balance.

Ukrainian strikes on Russian refineries are now doing what the sanctions regime has not.

The current strategy comes with limited risks. Ukrainian drones have generally been hitting their targets at night, causing few, if any, civilian casualties. As long as Ukraine continues to weigh potential harms to noncombatants every time it approves a strike, it should stay on the right side of international law. Targeting an industry that directly contributes to Russian military power is a reasonable wartime measure—one that past belligerents, such as the United States, have employed before, including in its recent operations against the Islamic State.

Ukrainian strikes on Russian oil refineries also seem unlikely to widen the conflict. At the very least, Russia will struggle to escalate in kind, given its long-running and far broader campaign to destroy Ukraine’s energy infrastructure: its forces destroyed Ukraine’s Kremenchuk oil refinery within weeks of the 2022 invasion, and the Ukrainian energy minister has said that Russian strikes earlier this year hit up to 80 percent of Ukraine’s conventional thermal power plants. Rather than threatening escalation in response to Ukraine’s strikes, the Kremlin has tended to play down their effects to avoid embarrassment.

To keep the risks low, the United States should neither help Ukraine proceed with these attacks nor even publicly encourage them. But nor should it try to dissuade Kyiv from this course of action. Despite the U.S. Congress’s recent approval of $61 billion in military aid, Ukraine is at its most fragile point in more than two years. Strikes on Russian refineries alone will not force Moscow to capitulate, but they do make the war more difficult and expensive for Russia—and so, if nothing else, when the time comes for negotiations, they may push the Kremlin to make concessions.

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This article was originally published by a www.foreignaffairs.com . Read the Original article here. .