As U.S. sanctions and increased Ukrainian drone attacks take their toll, Russia may be compelled to reduce its oil output in the coming months. The sanctions have hindered Russia’s access to tankers for transporting oil to Asia, while drone strikes have disrupted refinery operations.
Key Highlights:
Impact of Sanctions:
Recent U.S. sanctions targeted 180 Russian tankers, complicating Russia’s ability to export oil.
Ukrainian drone attacks have intensified, aiming to strengthen Kyiv’s bargaining position in ongoing negotiations.
Projected Production Cuts:
Russian oil executives indicate that production may slip below 9 million barrels per day (bpd) in the near future due to falling exports and limited refining capacity.
Current production levels are already significantly below the record 11.25 million bpd achieved in 2019.
Export Challenges:
Crude exports from key Russian ports, including Primorsk and Novorossiisk, fell by 17% year-on-year in January.
Russia no longer publicly discloses export data, making it difficult to assess the full impact of sanctions.
Shadow Fleet and Transportation Costs:
In response to sanctions, Russia has developed a “shadow fleet” of tankers that avoids Western services and insurance. However, recent sanctions have severely impacted this fleet.
The cost of transporting oil has surged, with rates from Russia’s Kozmino port to China increasing fivefold in January.
Increased Storage and Idling:
Russian firms have reportedly stored 17 million barrels aboard ships since January, with estimates suggesting this could rise to 50 million barrels by mid-2025.
The rate of idling ships carrying Russian oil has increased by 300% in some regions.
Refinery Disruptions:
Ukrainian drone attacks have knocked out approximately 10% of Russia’s refining capacity, affecting major refineries like Ryazan and Volgograd.
Attacks have also targeted oil storage facilities and pipelines, disrupting supply chains.
Economic Implications:
Russia’s budget deficit has exceeded $100 billion since the onset of the war, with oil revenues projected at $192 billion in 2024.
Any reduction in oil output directly impacts the economy, given that oil revenue constitutes a significant portion of federal income.
Adaptation Strategies:
Russia has increased its fleet of mid-sized Suezmax and Aframax tankers to mitigate the impact of sanctions.
The prices for used Aframax tankers have surged, reflecting heightened demand amid shipping shortages.