Ukrainian drone attacks have caused fuel shortages and knock-on economic and fiscal damage
Ukraine has intensified long-range drone strikes on Russian oil refineries over the past month, disrupting nearly 20% of national capacity and forcing Moscow to ban petrol exports. Russia faces regional fuel shortages, higher inflation and rising fiscal strains, exposing domestic economic vulnerabilities that are mounting even as Russian forces continue to make slow progress on the battlefield.
What’s next
Ukraine is likely to continue targeting Russian refineries, deepening Russia’s domestic fuel shortages and creating policy dilemmas for the government. Moscow will tighten export bans, draw on Belarusian imports and expand crude exports. Fuel inflation and regional discontent may rise, while global markets may be faced with a tighter market for refined products.
Subsidiary Impacts
- The Russian military will be unaffected by shortages of petrol as its forces rely on diesel.
- Budgetary strains will intensify if revenues continue to shrink and military spending remains high.
- Russian crude oil exports will rise if refinery output remains under pressure.
Analysis
Ukraine’s coordinated strikes on Russian oil refineries mark the most sustained campaign yet against Russia’s economic base. Since July 2025, at least ten refineries have been damaged, including Syzran and Novoshakhtinsk, disrupting an estimated 1.1 million barrels per day (b/d), or 17% of national refining capacity. Unlike earlier sporadic attacks in 2024, this new wave has been concentrated and sustained, causing longer downtime and exposing systemic vulnerabilities (see RUSSIA: Moscow will weather Ukrainian refinery attacks – June 24, 2024).
17%
The share of refining capacity affected by drone strikes at the end of August
In response, the Kremlin announced an export ban on July 28, illustrating the scale of the disruption. Despite the measure, wholesale petrol prices surged to record levels, while regional shortages intensified. For many Russians, rationing evokes Soviet-era scarcity, undermining state claims of stability.
Domestic consequences: shortages and inflation
Russia’s refining sector has long been central to economic stability, with exports generating vital revenues and domestic supply underpinning consumer confidence. The new disruption directly undermines both pillars.
Shortages and rationing
Retail fuel prices, partly capped through subsidies, have risen by more than 9% year-on-year, outpacing overall inflation. In peripheral regions, such as Zabaykalsky Krai, and in annexed Crimea, rationing has been reported, with some stations introducing coupon systems. These shortages carry symbolic and political weight, recalling past crises.
Inflationary pressures
The rise in fuel prices exacerbates wider inflation (see PROSPECTS 2025: Russian economy – November 4, 2024). Transport, agriculture and construction are especially exposed. Inflation expectations, already elevated by military spending and supply chain pressures, risk becoming entrenched. For households, fuel costs add to the burden of falling real incomes, further reducing consumer confidence.
Fiscal stress
The export ban deprives the budget of fuel tax revenues at a time when record military expenditure is straining public finances. Subsidies to refiners add further fiscal costs. The budget deficit, already exceeding forecasts in mid-2025, could widen further, forcing Moscow to mobilise additional reserves or expand domestic borrowing (see RUSSIA: Challenging fiscal conditions lie ahead – July 10, 2025).
Military impact: limited but symbolic
Russia’s military depends primarily on diesel and aviation fuel: both are still adequately supplied. Thus, frontline logistics remain largely unaffected for now. However, the strikes could complicate Moscow’s ability to maintain reserves if disruption persists into 2026.
More importantly, the campaign delivers a psychological blow. By demonstrating that rear-area infrastructure is vulnerable, Ukraine undermines the Kremlin’s narrative of control and resilience. It also strengthens Kyiv’s case to Western partners for continued provision of long-range strike capabilities, even if the attacks have been conducted with domestically developed drones.
Export dynamics: shifting flows and new risks
With refining disrupted, Russia is redirecting crude previously destined for domestic processing into exports. Shipments from western ports were revised up by 200,000 b/d in August to 2 million b/d (see RUSSIA: Crude exports will rise after refinery strikes – August 27, 2025). However, logistical bottlenecks remain.
Port capacity limits
The Baltic port of Ust-Luga has been operating at half capacity since being targeted, reducing throughput by up to 350,000 b/d. Russia has attempted to compensate by diverting volumes to Primorsk (Baltic Sea) and Novorossiisk (Black Sea), but vessel availability is limited, constraining potential increases.
Reliance on Asian buyers
India and China remain the key outlets for Russian crude, benefiting from discounted supply. Indian refiners, in particular, have re-exported products derived from Russian oil to Western markets. However, new EU rules requiring importers to verify the origin of goods threaten this model. India’s state refiners are reportedly reconsidering their exposure (see RUSSIA/INDIA: Oil trade is likely to rise – August 29, 2025).
US trade pressure
Washington is also pressuring India to reduce its Russian oil purchases. President Donald Trump has threatened to impose higher tariffs on Indian goods if purchases continue, thereby increasing the risk of reduced trade flows. Russian seaborne crude exports to India fell by 5% in June.
Political consequences
Fuel shortages and rationing have direct political consequences. While mass protests remain improbable, visible shortages challenge the state’s image of stability. In annexed Crimea and peripheral regions, discontent could grow if disruptions continue into the winter.
The strikes also test Moscow’s fiscal resilience. Falling revenues and rising subsidies increase pressure on the federal budget, potentially forcing unpopular measures such as higher domestic taxes or increased borrowing from state banks.
Attacks on refineries help Kyiv appear capable of offensive operations
Internationally, Ukraine’s campaign reinforces Western messaging that Russia’s economy is under sustained pressure. It provides tangible evidence that long-range strikes can disrupt Russia’s war economy, strengthening Kyiv’s case for further Western support.
Ukrainian strategy
Ukraine is unlikely to abandon its focus on energy infrastructure. Strikes on refineries are low-cost, high-impact operations that undermine Russia’s domestic stability and global energy credibility. Continued Western supply of drones and intelligence will sustain this campaign.
Russian responses
Moscow will accelerate repair work, expand air defence deployments around energy hubs and deepen reliance on Belarus to cover shortages. However, these are palliative measures rather than long-term solutions. The scale of refining losses means that disruptions will continue.
Market implications
For global markets, the strikes tighten balances in refined products more than crude. Petrol and diesel prices are likely to remain elevated, particularly in Europe. For Russia, the main risk is a narrowing of Asian demand, especially if US and EU pressure succeeds in curbing Indian purchases.
Outlook
Ukraine’s refinery strike campaign represents the most effective economic disruption it has inflicted on Russia since the full-scale invasion began. By disabling up to 17% of refining capacity, Kyiv has triggered domestic shortages, raised inflationary pressures and forced export bans that deprive Moscow of revenue.
For Russia, the military impact is limited, but the economic and political costs are real. However, as the campaign continues, Russia faces a growing dilemma: whether to prioritise domestic stability through subsidies and imports or sustain export revenue flows critical to financing the war. Either option imposes costs.
Ukraine, meanwhile, has demonstrated the value of long-range strike capabilities and will press Western partners to sustain support. Its prospects for securing this have risen due to Moscow’s repeated refusal to engage seriously with US efforts to stop the fighting. For energy markets, Russian refineries are now established as a key vulnerability, ensuring that global oil and fuel prices remain exposed to further disruption.
