Ukraine's repeated strikes on Russian energy infrastructure have dealt a serious blow to Moscow's vital fuel exports just as Western sanctions are tightening. But if these attacks are too successful, they risk raising the ire of U.S. President Donald Trump.The conflict between Russia and Ukraine that began in 2022 took a sharp turn in recent weeks as Kyiv began to launch waves of drone attacks on Russian refineries, pipelines and export terminals. This has taken a heavy toll on Russia's sprawling oil and gas industry, which accounts for a quarter of the country's GDP.Ukraine intensified these strikes on Wednesday, as drones attacked Salavat - one of Russia's largest petrochemical complexes, opens new tab- for the second time in less than a week, and the Black Sea port town of Novorossiisk.
Moscow was rattled enough to respond. Deputy Prime Minister Alexander Novak said on Thursday that Russia will introduce a partial ban, opens new tabon diesel exports until the end of the year and extend an existing ban on gasoline exports.Russia is a major exporter of diesel, shipping around 880,000 barrels per day in 2024, or 12% of global diesel seaborne exports, according to analytics firm Kpler.
While the diesel ban applies to traders but not refiners, which account for around three-quarters of total exports, the announcement still led to a sharp rise in global diesel prices.
European diesel refining margins – the profit refiners make from processing crude into diesel – soared by 8% to the highest level since February 2024, according to LSEG data.
This strong market reaction is partly due to the fact that global diesel stocks are already quite tight. U.S. inventories of distillates, which include diesel and heating oil, were 11% below their 10-year average last week, according to the Energy Information Administration.
Multiple threatsRussian President Vladimir Putin clearly did not make this decision lightly, as a sharp drop in diesel exports deprives Moscow of vital cash. Revenue from seaborne refined product exports reached around $170 million per day in August, or $5.3 billion for the month, according to the Centre for Research on Energy and Clean Air.
And, importantly, he made this decision at a time when Western sanctions on Russia's oil and gas industry are tightening.Over the past few years, Europe, the United States and other major Western economies have delicately crafted sanctions to limit Moscow's revenue from energy exports while avoiding a global price shock.
Thus, while these Western powers have agreed to largely ban Russian oil imports, they have not attempted to curtail the flow of Russian crude entirely.Instead, the Group of Seven countries in 2022 introduced a price cap on Russian crude and refined oil that shippers and insurers must abide by to avoid sanctions.
This strategy has prevented a global supply shock, but the financial impact on Moscow has also been limited. This is largely because of the significant expansion of the so-called "shadow fleet" of tankers that Moscow's trading partners use to evade Western restrictions.
In fact, 64% of Russian crude oil exports in August were shipped on shadow fleet tankers, an 11% increase from the previous month, according to CREA.But the apparent effectiveness of Ukraine's latest strategy could end up being a problem for Western economies. That's because it could upset the delicate balance between punishing Moscow and avoiding sharp increases in energy costs.
This is particularly true for Trump, who made lowering domestic energy prices a key electoral promise. And it could help explain the president's equivocation regarding Moscow.
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