Export Capacity Slashed by One-Fifth! Report: Ukrainian Drone Strikes Precisely Hit Russian Oil, Forcing Production Cuts

Ukraine's sustained attacks on Russia's energy export infrastructure are pushing production cut pressures to the brink.

On April 2, according to Reuters, citing three industry sources, Ukraine's intensive attacks on ports, pipelines, and refineries have reduced Russia's oil export capacity by approximately 1 million barrels per day, equivalent to one-fifth of its total export capacity. Currently, Russia's oil pipeline system is experiencing severe backlogs, storage facilities are nearing saturation, and some oil fields are being forced to limit production to prevent system overload, making production cuts imminent.

This situation will add further uncertainty to the already strained global oil supply. Russia is the world's second-largest oil exporter, and oil and gas revenue accounts for a quarter of its fiscal budget. A substantial decline in production will directly impact Russia's fiscal revenue.

Russian Ports Attacked, Oil Exports in Jeopardy

According to reports citing three sources, approximately 20% of Russia's oil export capacity is currently paralyzed. While this is a decrease from the 40% peak in March, it still exerts significant pressure on production.

Over the past month, Ukraine has launched its most intensive drone attacks since the start of the war, with a focus on the Baltic Sea ports of Ust-Luga and Primorsk. The port of Ust-Luga, after suffering a large-scale drone attack and subsequent fire about a week ago, has completely suspended oil loading operations.

Over 80% of Russia's oil is transported by the state-owned pipeline monopoly, Transneft. Sources indicate that Transneft has notified exporters that the port of Ust-Luga cannot load oil as originally planned due to facility damage, nor can it receive all the oil originally intended for export through this port from producers. According to reports, the loading plan for Ust-Luga port in the first half of April is unlikely to be fulfilled, while the allocation for the second half of the month remains unchanged for now.

Multiple Bottlenecks Compound Pressure on Russia's Oil Export System

Russia's oil export bottlenecks did not begin with the recent port attacks. In January of this year, the "Druzhba" (Friendship) pipeline, which supplies oil to Hungary and Slovakia, suspended operations, narrowing export capacity even before that.

The disruption at the Ust-Luga port has also affected Kazakhstan. According to reports citing sources, Kazakhstan exports approximately 200,000 to 400,000 metric tons of KEBCO crude oil through this port monthly.

Seasonal refinery maintenance has further exacerbated congestion in the Transneft system. Sources state that during the usual maintenance period in March and April, Russia typically increases crude oil exports. However, the combination of refinery shutdowns and blocked export channels has led to a significant accumulation of crude oil in storage and transportation systems, further compressing production capacity.

Gains from Rising Oil Prices Threatened by Production Cuts

Revenue from oil is crucial for Russia's fiscal situation. Oil and natural gas combined contribute approximately one-quarter of the national budget revenue. According to OPEC data, Russia's crude oil production in February of this year was 9.184 million barrels per day. Reports indicate that sources have not provided specific forecasts for the scale of production cuts.

Despite drone attacks on its refining facilities by Ukraine, Russia's crude oil production only saw a slight decrease of 0.8% last year, to 10.28 million barrels per day, accounting for about one-tenth of global production. Russia is the world's third-largest crude oil producer, trailing only the United States and Saudi Arabia.

Since the outbreak of the conflict in the Middle East at the end of February, international oil prices have risen significantly, a trend that Russia had been benefiting from. However, if crude oil production is forced to be significantly reduced, these gains will be partially offset, further increasing Russia's fiscal pressure.