Every drone Ukraine fires at a Russian oil terminal is meant to defund Moscow’s war in Ukraine. Right now, each one may be doing the opposite.
Ukraine’s strikes on Russian oil export infrastructure are intended to starve Moscow of the budget revenues that fund its war machine. The logic is straightforward: disrupt exports, reduce revenues, constrain the war effort. Kyiv has been explicit about this: Ukrainian officials consistently frame attacks on oil terminals as direct hits on Russia’s war chest, treating every barrel that cannot be shipped as a rouble that cannot be spent on missiles or mobilisation.
Reuters puts the scale of that disruption in stark terms – at least 40 per cent of Russia’s crude export capacity, roughly 2 million barrels per day, is currently offline. This is the result of Ukrainian drone attacks combined with the Druzhba pipeline pumping oil from Russia to Hungary being offline and crackdowns on the shadow fleet of oil tankers lurking in European waters.
Oil is now above $100 (£75) per barrel
The strikes have been precise and damaging. On the night of 22 March, Ukrainian drones hit Primorsk, Russia’s largest Baltic oil terminal, igniting a fuel depot and forcing evacuations. Two nights later, Ust-Luga – which handles around 700,000 barrels per day – was struck in what Ukraine’s security service described as the largest overnight drone operation of the year, setting its tank farm ablaze. All three of Russia’s major western export ports have now been hit within days of each other.
And yet there is a deep flaw in the strategy, one that the current global supply environment makes unavoidable – and that Kyiv’s planners may not have fully reckoned with.
Russia completed its oil tax overhaul in January 2024, eliminating export duties entirely. Federal oil revenues now flow almost exclusively through the mineral extraction tax, or MET, calculated on price multiplied by volume extracted – not exported. The Russian state gets paid when oil comes out of the ground, not when it leaves the country. Last year, that generated roughly $108 billion (£81 billion) for the federal budget – an average of around $9 billion (£6.7 billion) per month – at a Urals crude oil price averaging between $62 (£47) and $65 (£49) per barrel. This counted as a bad year; revenues fell 24 per cent compared to 2024 as prices softened and sanctions bit.
Urals crude is no longer trading at $65. While the Strait of Hormuz has been severely disrupted and the Gulf’s supply of oil sharply curtailed by Donald Trump’s war with Iran, Russian export routes through the Baltic and the Eastern Siberia-Pacific Ocean pipeline to China remain entirely unaffected. As such, buyers desperate for deliverable barrels are bidding away the traditional Urals discount. Oil is now above $100 (£75) per barrel, meaning the month-to-date average for March, on which the oil tax is calculated, is likely to be in the rage of $85 (£64) to $90 (£68) per barrel – close to 50 per cent above February’s $56.50 (£42) average.
Every $10 (£7.50) rise in the Urals crude price adds roughly $1.5 billion (£1.12 billion) to Russia’s monthly MET revenues at current extraction rates. The rise in the average price is expected to bring in an additional $4.5 billion (£3.4 billion) for the Russian federal budget in March alone – even assuming a reduction in export volumes. Should the price of oil remain elevated for four months, as many energy analysts now see as the baseline scenario, it would bring in the equivalent of 0.8 per cent of Russia’s GDP in additional revenues to the budget.
No longer feeling a shortage in oil revenues, but in fact anticipating a surplus above the Kremlin’s budget, Moscow has already paused planned changes to its fiscal rules defining how much of the money stashed in the government’s rainy-day fund should be spent. There is a chance they may also reconsider spending cuts.
Ukraine is, in effect, further intensifying a global oil supply shock that disproportionately benefits the budget it is trying to deplete. True, if the disruption happens to be short, a possible spike will be smoothed by averaging the price of oil across the whole month. However, even if marginal, the oil price used for taxation purposes would be higher. The burden is being shouldered by consumers worldwide paying record fuel prices and by Russian oil companies squeezed between high extraction taxes and constrained export earnings – but not by the Kremlin. The strategy made sense when oil cost $65 a barrell. At $110, the arithmetic runs the other way.
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