Russia Faces Oil Output Cuts as Sanctions and Drone Strikes Disrupt Operations

Russia may be forced to cut oil production in the coming months as U.S. sanctions restrict access to tankers for exports to Asia, while Ukrainian drone strikes continue to disrupt refinery operations.

The latest U.S. sanctions, imposed last month, targeted 180 Russian-owned tankers, significantly impacting the country’s ability to ship crude oil. Meanwhile, Ukraine has intensified its drone attacks, seeking to strengthen its position as U.S. President Donald Trump is expected to push Russian President Vladimir Putin toward negotiating an end to the conflict.

Trump has prioritized ending the war in Ukraine and has warned that additional sanctions on Russia could follow if his objectives are not met.

Declining Exports and Surging Oil Surplus

Three senior Russian oil executives, who spoke on condition of anonymity, admitted that Russia will have no choice but to reduce oil production. Falling exports and reduced refining output are creating a supply glut, leaving Russia with limited storage capacity. In recent weeks, Ukrainian drone strikes have also targeted storage facilities, further exacerbating the issue.

Russia’s crude output could fall below 9 million barrels per day (bpd) in the coming months, with further reductions possible if tanker shortages and refinery outages persist.

Export data already shows a decline. Crude shipments from Russia’s western ports—Primorsk, Ust-Luga, and Novorossiisk—were down 17% year-on-year in January, according to traders’ data analyzed by Reuters. Russia no longer publicly discloses its export statistics.

Sanctions Strain Russia’s “Shadow Fleet”

Russia has attempted to circumvent sanctions by assembling a “shadow fleet”—a network of tankers avoiding Western services and insurance. However, the latest U.S. sanctions have severely impacted this fleet.

• Shipping costs have soared: Transporting crude from Russia’s Pacific port of Kozmino to China has become five times more expensive.

• Restricted access to ports: Several Chinese and Indian ports are now blocking a fifth of Russia’s sanctioned vessels.

• Rising oil storage at sea: 17 million barrels of Russian crude are currently stored aboard tankers, up from zero at the start of the year, with projections indicating this could reach 50 million barrels in the first half of 2025.

• Drifting tankers: Marine analytics firm Windward reports a 300% increase in the number of Russian tankers idling or drifting, particularly in the Sea of Crete, Portugal, and off the coast of Madagascar.

Russia’s Arctic oil fields, which produce over 300,000 bpd, are struggling to find available tankers, raising concerns that they may have to curtail production.

Refinery Disruptions and Storage Attacks

Russia’s domestic refining operations are also facing growing pressure:

• Ukrainian drone strikes have damaged eight refineries, oil depots, and industrial facilities since January.

• Approximately 10% of Russia’s refining capacity is now offline, according to estimates based on traders’ data.

• Key sites, including Ryazan, Volgograd, and Astrakhan refineries, have halted fuel production, with repairs expected to take weeks or months.

• Pipelines and pumping stations have also been targeted, disrupting crude flows to export terminals and refineries.

• Ust-Luga port, one of Russia’s largest export hubs, has seen loadings drop to a four-year low, with operations running at only 50% capacity.

Moscow’s Response: Tanker Purchases and OPEC+ Cuts

Russia is adapting by acquiring smaller Aframax tankers, with at least 12 vessels purchased since January. The price of used Aframax tankers has surged to $40 million, up from $15 million last year.

Meanwhile, Russia’s agreement with OPEC+ to reduce output is further limiting its crude production. While OPEC+ members plan to ease production cuts from April, Russia’s ability to increase exports remains uncertain due to logistical challenges.

Economic Consequences

With oil revenue accounting for nearly half of Russia’s federal income, sustained production cuts could intensify Moscow’s financial struggles:

• Russia has run a $100 billion budget deficit since the war began.

• Oil revenues totaled $192 billion in 2024, but any disruptions could strain government finances further.

• Washington considers Russia’s rising tanker costs a strategic victory, as it diverts funds away from military operations.

Uncertain Future Amid Geopolitical Tensions

Despite previous predictions of a steep decline in Russian oil production, the country has managed to maintain output through workarounds. However, growing operational challenges and increasing sanctions pressure may finally force significant reductions.

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