Russia’s oil sector bruised but not broken by Ukraine's drone strikes

Ukraine's expanding drone campaign against Russia's oil industry is testing the Kremlin. Can it keep the domestic economy functioning after more than four years of war as its cash cow industry takes a painful pounding.

Successful strikes against the Kapotnya refinery in southeast Moscow earlier this month suggest Kyiv's campaign has entered a new phase. IntelliNews Moscow correspondent reports a smell of burning in the Russian capital and black fumes from the resulting fires were seen for days as the damage was extensive. Not only are Ukrainian drones reaching increasingly sensitive targets, they are doing so in some of the most heavily defended airspace in Russia. During the biggest drone assault of the war last week, 200 drones were shot down on their approach, but another 200 reportedly got through to hit their targets.

The attacks also highlight a broader shift in Ukrainian strategy. Earlier waves of strikes focused on export infrastructure, including oil terminals and storage facilities. While those attacks generated dramatic images and temporary disruptions, Russia largely managed to restore exports quickly.

The latest campaign targets a more vulnerable part of the system: refining capacity.

"The Russian oil industry's resilience is being stretched dangerously thin," energy analyst Sergey Vakulenko wrote in a note in Carnegie Politika.

The Kapotnya refinery illustrates the problem. When the facility was modernised in 2020, multiple processing units were replaced with two integrated installations located close together. The redesign improved efficiency during peacetime but created a vulnerability that became apparent only after Ukraine's drone programme matured.

On June 12, one or more drones struck one of the refinery's processing units. Six days later, at least five drones reportedly hit the refinery's second major processing unit as well as storage facilities for both crude oil and refined products.

Individually, an attack on a mid-sized refinery would not normally have significant national consequences. The concern for Moscow is that Kapotnya is only the latest target in a campaign that has grown both more frequent and more effective.

Following a brief pause in January, Ukraine resumed large-scale attacks in March. Initially the focus remained on export infrastructure. Strikes on storage facilities at the Baltic port of Ust-Luga temporarily halted shipments for two weeks. Sixteen of the terminal's 54 storage tanks were hit, while five suffered severe damage. Similar attacks at the Grushovaya oil depot serving Novorossiysk damaged 14 tanks and destroyed five.

Yet exports proved surprisingly resilient. According to Bloomberg data cited by Vakulenko, loaded tanker departures from Baltic and Black Sea ports temporarily fell by half during the most intense period of attacks but quickly recovered. By the second half of April, Russia's seaborne crude exports had reached approximately 3.8mn barrels per day, around 500,000 barrels per day above the average level recorded between 2023 and 2025.

The more consequential development came when Ukraine shifted its focus from export terminals to Russia’s refineries.

In April and May alone there were 26 Ukrainian attacks on refining facilities, matching the intensity seen during August and September 2025, when Russia experienced significant gasoline shortages.

The effect on refining output has been substantial. Russia's daily refined-product output stood at approximately 5.2mn barrels per day at the end of March but subsequently fell by as much as 700,000 barrels per day during April and May. The decline represents roughly 13% of output. By comparison, the fuel shortages of 2025 were associated with a reduction of approximately 480,000 barrels per day, or about 9%.

The damage is becoming more serious as well. As IntelliNews has argued, the Armed Forces of Ukraine (AFU) has improved the range and sophistication of its drones, but the payloads they can carry over such long distances is limited. By contrast, Russia is churning out dozens of ballistic and cruise missiles a day that can travel the same distance but with payloads an order of magnitude bigger. Limited to drones, Ukraine’s offensive ability is also constrained.

To compensate, Ukraine is increasing the number and frequency of the attacks and diversifying its targets. According to Vakulenko, drones are increasingly striking complex isomerisation, cracking and hydrotreating units rather than primary processing equipment. Those facilities are more difficult to repair and often require imported components that remain subject to sanctions restrictions.

The result is a growing contest between Ukrainian drone manufacturers and Russian repair crews.

"The amount of gasoline available in Russia at the moment is determined by a race between Ukrainian drones and Russian repair teams," Vakulenko argues. "If the frequency of Ukrainian attacks can be maintained, and the damage from each attack increases, then the advantage swings toward Kyiv."

For now, Russia has managed to avoid a full-scale fuel crisis. Shortages are popping up around the country. Crimea first rationed petrol purchases to 20 litres per person and banned jerry cans. Trucks were limited to 100 litres. But more recently, petrol sales to non-essential services have been banned completely. The Kremlin has been careful to make sure the politically liberal Moscow remains supplied, but it has done so by transferring petrol supplies from regional cities to the capital, which are less likely to rebel. This week Siberia also reportedly started rationing petrol and diesel sales.

The centre has been helped by the weather. Seasonal demand remained relatively weak during the spring months, fuel inventories were elevated following the winter, and regulators have relaxed quality requirements by permitting the sale of lower-grade Euro-3 gasoline as Euro-5 fuel, a measure introduced in late 2025. That allows for additives and ethanol mixes to spin out what supplies remain available.

The situation nevertheless appears to be deteriorating as Ukraine’s bombardment continues. Reports of fuel supply disruptions had emerged in 25 Russian regions by June 19. While that remains well below the 57 regions affected during the height of the 2025 fuel crisis, the trend is moving in the wrong direction.

Particularly worrying for the authorities is the concentration of damage around Moscow. Refineries supplying the capital through pipeline networks, including facilities in Yaroslavl, Ryazan and Kstovo, have all suffered attacks.

That matters because Moscow sits at the centre of Russia's transport economy. Around 14% of Russia's 53mn passenger cars are registered in Moscow and the surrounding region, while approximately 40% of the country's air passenger traffic passes through the capital. Moscow is by far the largest city in Europe and travelling by car is essential to most of its residents.

Even if sufficient fuel can be sourced elsewhere, distributing it efficiently presents another challenge.

Ukraine's ability to sustain pressure will depend partly on drone production. Firepoint, the manufacturer of the FP-1 drones reportedly used in attacks on Moscow, currently produces around 100 drones per day, though only about 10% are estimated to reach their targets. The company has announced plans to increase production.

At the same time, Russia faces mounting pressure on its repair capacity. Refineries subjected to repeated attacks experience cumulative structural degradation as equipment undergoes repeated heating, cooling and emergency repair cycles. Some facilities have already endured extensive bombardment. The Ryazan refinery, for example, has reportedly been attacked 15 times.

If refining capacity continues to decline, the Kremlin may eventually face difficult political choices.

Russia currently subsidises domestic fuel prices through so-called damper payments to refiners, allowing gasoline to be sold at prices up to RUB30 per litre below market levels. The mechanism encourages consumption but also discourages imports, even from neighbouring Belarus, as IntelliNews reported, where additional refining capacity is already being tapped to alleviate shortages.

The damper payments are already significant and cut into the windfall profits the Kremlin has been earning from high prices caused by the closure of the Strait of Hormuz.

Vakulenko argues that scrapping the subsidy system would help address supply constraints and reduce budget costs. The alternative would be far less attractive: allowing prices to rise sharply, introducing rationing, or accepting queues and shortages that could encourage black-market activity. In another move to control the market the Kremlin has banned online sales of petrol using Russia’s leading e-commerce sites Ozon and Wildberries.

"Ultimately, during a period of deficit, it's crazy to be stimulating demand by artificially depressing prices," he writes.

For much of the war, Russia's energy sector has demonstrated remarkable resilience, maintaining export revenues despite sanctions and absorbing repeated attacks on infrastructure. The latest wave of strikes suggests that resilience may finally be approaching its limits.

Ukraine may not be able to shut down Russia's oil industry. But by steadily degrading refining capacity and forcing Moscow to divert resources into repairs and domestic fuel management, Kyiv is increasingly turning the Kremlin's most important economic asset into a growing vulnerability.