Ukraine, short of ammunition and military personnel, has achieved at least one significant success in the past year – neutralizing the Black Sea Fleet, sinking 30 percent of its ships. Now it intends to repeat this feat in the Russian rear – by disabling the oil refining infrastructure that provides the aggressor’s army with fuel and the government with petrodollars.
As with the Navy, the primary means of achieving this goal is drones. Every month, more and more of them will appear over Russian territory, Mikhail Fedorov, Ukraine’s minister of digital transformation, who oversees drone production, told Bloomberg: “The number of long-range drones will be unprecedented.”
Little is known about the technical development of Ukrainian drones, but their successful long-range use has only been demonstrated in recent weeks.
Ukrainian manufacturers are already ready to produce over one million drones for the needs of the army. The government has allocated about 40 billion hryvnias (over 24 million euros) to organize the production, Prime Minister Denis Shmigal said in early March.
Oil strike
This year, Ukrainian planes have already attacked 15 plants in Russia, whose total share in Russian oil refining in December exceeded 45%, according to Bloomberg estimates. Not all of them were damaged, but according to various estimates, due to the damage, Russia lost about 10% of its fuel production.
Taking into account only refineries that produce gasoline and diesel, the economy lost about 9 percent of output, or 77.4 thousand tons per day on a refined oil basis, Reuters estimated. A total of 13% (about 112 thousand tons per day) of the total capacity of the existing primary oil processing units in the refineries are in emergency shutdown mode.
According to JPMorgan Chase, the Ukrainian attacks have disabled capacity by 900,000 barrels (about 123,000 tons) per day. Their recovery may take “several weeks, if not months”, bank analysts wrote. As a result of the current situation, according to their estimates, the additional risk premium amounts to 4 dollars per barrel compared to world oil prices.
According to the CEO of oil trader Gunvor Tornbjorn Tornqvist, the drones have disabled 600,000 barrels per day (82.5 thousand tons) of capacity. “This is important because it will directly affect exports of refined products,” he told the CERAWeek energy conference. “So exports will probably decrease by several hundred thousand barrels per day.”
Reducing the income of the Russian budget from exports is one of the goals of the attacks on the refineries. They must also undermine the supply of the aggressor’s armed forces. In addition to oil refineries, drones in January successfully hit an oil depot in the city of Klintsy, Bryansk Oblast, causing a massive fire. Due to earlier attacks, Russia had already lost a tenth of its petroleum exports at the beginning of the year, and the government banned gasoline exports from March 1 to August 31 (although the reduction in their supply can be offset to some extent by increasing of crude oil exports).
From a token experience to a large-scale campaign
Francisco Sierra Martins, CEO of Terminal Autonomy, a US company founded last year that manufactures drones in Ukraine, called the attacks “a new form of war of attrition”: “Russia is a gas station with an army and we intend to destroy this gas station. We are focusing on where we can hit harder and that is financial resources.”
Even if the drones fail to blow up a target, Russian air defense systems must fire missiles at them, which can cost 40 times more than the drone they shoot down. So there are economic benefits here too, adds Sierra Martins.
“Ukraine’s leaders seem to think that even if they have to defend themselves, they have to continue to hurt Russia,” said Peter Schroeder, a former senior CIA analyst on Russia. What began as a largely symbolic attempt to taking the war into enemy territory, Schröder added, referring to the drone strike against the Kremlin on the night of May 3, 2023, has become a “large-scale campaign to inflict damage on strategic targets.”
The strikes are also intended to apply psychological pressure, a spokesman for another drone maker told Bloomberg, as Moscow tries to ensure that the war does not affect people’s daily lives and make the public think it does. But governors of regions where drones fly in regularly report attacks, although authorities try to play down the effect by substituting the word “explosion” and urging, and sometimes banning, as in Leningrad Oblast, the filming of drone attacks and destruction , which they cause, as well as to publish such materials on social networks.
“They take this very seriously,” admitted Alexei Mukhin, director general of the Center for Political Information, which advises the presidential administration, in a conversation with Bloomberg. “The population wants to know when Russia will respond.”
As long as refineries in the European part of Russia do not lose half of their capacity, drone attacks are unlikely to significantly affect the course of hostilities, believes oil and gas market expert Mikhail Krutikhin. But the civil sector will suffer. “In the name of war, the Kremlin is ready to sacrifice a lot, and supplying the troops will most likely be its priority; other consumers of gasoline and diesel fuel, including farmers, may be patient,” says Krutikhin. “”This cannot does not provoke supply disruptions, shortages at petrol stations and, of course, a new round of increases in the retail prices of motor fuel and ultimately in the prices of all goods delivered by road.”
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