US Sanctions and Ukrainian Drone Attacks Force Russia to Scale Back Oil Production

Russia may reduce oil production as US sanctions restrict access to tankers and Ukrainian drone strikes disrupt refineries, according to Reuters on February 13.

Last month, the US imposed sanctions on 180 Russian tankers, while Ukraine escalated drone attacks on oil infrastructure.

Reuters sources indicate that production cuts are inevitable due to falling exports and reduced refining capacity. Russia’s limited storage facilities have been further compromised by recent drone strikes.

Initial cuts may be modest, pushing Russia’s output below 9 million barrels per day (bpd), but could escalate if tanker shortages and refinery outages persist. Crude exports from western ports declined by 17% year-over-year in January, while transportation costs from the Pacific port of Kozmino to China increased fivefold.

Some Chinese and Indian ports now restrict sanctioned vessels, leading buyers to shift to oil from Saudi Arabia, the UAE, and Iraq.

Since January 10, Russian firms have stored 17 million barrels of oil aboard ships, up from zero earlier in the year, with Goldman Sachs projecting a rise to 50 million barrels by mid-2025.

Idle tankers carrying Russian oil have increased by 300%, with many anchored near Crete, Portugal, and Madagascar. Arctic oil fields, producing over 300,000 bpd, face transportation difficulties due to a lack of ice-class tankers.

Russia has accepted lower output levels under OPEC+ agreements,  but further reductions could impact revenues. The country’s budget deficit has surpassed $100 billion since the war began, with oil revenues reaching $192 billion in 2024, about half of total federal revenue.

Russia’s daily oil production, down from 11.25 million bpd in 2019 to 9 million bpd, includes about 5 million bpd for domestic refining. Since January, Ukrainian drone strikes have damaged eight refineries, oil depots, and industrial sites, disrupting 10% of refining capacity.

Major facilities, including Ryazan, Volgograd, and Astrakhan, have halted fuel production, with repairs expected to take months. Attacks have also hit oil storage, pipelines, and pumping stations, reducing export flows.

Since 2022, Russia has expanded its fleet of tankers, including Very Large Crude Carriers and Suezmax vessels. In response to the latest sanctions, Moscow has turned to smaller Aframax tankers, purchasing at least 12 since January, driving up vessel prices from $15 million last year to around $40 million. The cost of shipping oil to China in an Aframax tanker has increased from $1.5 million in 2023 to $6.5-$7.5 million.

Washington considers Russia’s increased spending on shipping a strategic setback, as it diverts resources from military operations. Despite previous forecasts of a sharp drop in Russian oil output, logistical and financial challenges are mounting. A Russian oil executive told Reuters that refining and selling oil had become increasingly complex and difficult to manage. “Everyone is waiting for this war to be over.”

Earlier, Russian authorities and media reported a large-scale drone attack on Lipetsk and the Novolipetsk Metallurgical Plant overnight on February 13. Governor Igor Artamonov confirmed the incident, stating that air defense and electronic countermeasures were deployed.