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Oil Refinery in Moscow (Author: kishjar? from Moscow, Russia and available at at https://flickr.com/photos/62146734@N08/52205614839. This file is licensed under the Creative Commons Attribution 2.0 Generic license. No changes were made to the original image.)
Introduction
The outbreak of the war in Ukraine caused a collapse of the European equilibrium. Both for Ukraine and Russia, this war constitutes a multilayered effort for the tightness of their respective administrations, welfare, and economies. Particularly, the Moscow regime had to adapt itself to the new development of the war. In 2022, it began as a blitzkrieg (literally, lightning war), but it rapidly transformed into trench and attrition warfare.
In the Kremlin’s view, the fact that the army got bogged down in the Ukrainian Černozëm (the “black soil”) implied a change in the overall state apparatus. The first consequence was the change of paradigm within the Russian economy. Russia decided to switch to a Wartime economy, applying a military Keynesianism approach. The defence spending budget increased, leading the entire economy to follow the wartime lead.
In front of the recrudescence of the conflict, European states applied sanctions against Russian subjects and enterprises, forcing Moscow to downsize the amount of trade with the European partners and to search for new trade partners. In addition, Ukraine repeatedly conducted multiple drone attacks over Russian territory, specifically over oil refineries. These attacks are constraining Moscow to intervene directly to sustain oil firms and to control inflation.
The article aims to present what is bringing Russia to a condition of quasi-economic crisis due to multiple factors presented above. The intention is to give the reader the instruments to understand what threats Russia is facing to its economy and what the possible consequences of that are for Moscow. The first part of the article will present the background and the circumstances of the Ukrainian-led drone attacks on oil refineries. The second one is intended to better explain what the implications and the consequences are, and the threats that those attacks pose to Russia, and what path Moscow is following.
Landmarks during the war of Ukrainian attacks
Since 2022, Ukraine has started a campaign of systematic strikes against Russian facilities and buildings. The direct target of the strikes is oil refineries, due to the importance that oil has in the Russian economy.
Indeed, the USSR before and the Russian Federation later conceived the oil and gas trade as crucial for their own survival. During the 50s and the 60s, Soviet authorities discovered a great amount of fossil fuels beneath the surface, and they started digging and exploiting those resources. With the collapse of the Soviet Union in 1991, the Russian Federation pointed out the importance of fossil fuels, increasing and fostering the extraction, refining, and selling of oil and gas. Since the beginning of his mandate in the early 2000s, Putin’s approach to energy has followed a clear path: strengthening Russian position over the fossil fuels market to achieve the growth objective, fixed at roughly 4-6% per year.
Given this background, Ukrainian strikes over oil and gas refineries respond to a twofold logic: military and economic. First and foremost, the objective of striking these infrastructures is essential to interfere with the Russian war machine. Russia’s expenditure on defence is approximately $140 billion in 2024. Most of the expense is concentrated in military manufacturing and research and development (R&D) of new weapons and new systems of defence. Traditionally, manufacturing is a high-energy-consuming sector and, to keep working, firms need a constant supply of energy.
The energy mix of the Russian Federation relies heavily on 88% on fossil fuels (coal, oil, and gas). Even if Ukraine does not possess the capability of striking the entire Russian fuel supply chain, they reached important quantitative achievements. As a matter of fact, Ukraine’s strikes caused damage to the Russian GDP of almost 4% (around $74 billion). The attacks hit sites in Crimea (a train which carried fuel in Dzhankoy), in the Voronezh Oblast’, in the Samara region, reaching different parts of the Russian territory, within a range of a maximum of 1000 km.
In addition, great attention needs to be paid to the European Union sanctions imposed on Russia. Since the beginning of the invasion, the EU has approved 18 packages of sanctions, which targeted individuals, entities, goods, visa policies, the financial sector, transportation, and energy. Sanctions affected a half-hearted Russian economy since Russia switched to a wartime economy. Even if the EU imposed an oil price cap (at the time I am writing, it is fixed at $47.6 per barrel) or a ban on using the SWIFT system for Russian banks, Moscow has experienced a reduction of the GDP of only around 2% in 2022. Instead, the GDP increased in 2023 and 2024, respectively of 3% and 5%. Russia is currently benefiting from the higher revenues of oil and gas prices, due to the worldwide supply crisis.
Implications for the Russian economy
The submitted data present a situation in the Russian economy that could be contradictory. Indeed, at first sight, it seems that Russia is facing a long-standing economic crisis due to Ukraine’s long-range strike on oil and gas infrastructures. From another point of view, it appears that Russia is coping with some difficulties due to the war and sanctions, but that generally the situation is under control for the Kremlin. Notably, Moscow’s economic landscape is dual: contingencies played a key role in the last few months, even if structural features can better explain what Russia is going through.
In the first place, fuel prices for consumers are growing rapidly, reaching a peak of 50% at the gasoline stations compared to the prices at the beginning of 2025. Long-range strikes on oil refineries, pipelines, and energy infrastructures are causing shortages within the Russian energy system. Moscow’s authorities intervened on the issue, specifically through so-called “recovery activities”. Simply put, oil producers are trying to contain prices while accelerating the pace of gasoline production, also using oil reserve stocks.
Moreover, since the launch of the “special operation” in 2022, Russia has been operating in a regime of international sanctions, mostly imposed by European states. Thus, the sanctioning regime put heat on the Russian economy. The European outlook was to cause serious difficulties to Moscow, creating the conditions for a rapid de-escalation in Ukraine. If in 2022 Russia faced a growth, later (both in 2023 and 2024) it encountered consistent growth rates. Indeed, the oil and gas trade moved from Europe to Asia, particularly to the People’s Republic of China and to India, which benefited from lower-priced oil to stimulate their economies. Also, Russia began to export oil through a group of crude tankers, which are not directly connected with the Kremlin. This “shadow fleet” is meeting the resistance of European states, which imposed sanctions on a series of these ships.
Conclusions
Russia is now facing a crisis in its economy. The long-range strikes conducted by Ukraine are a serious threat to the stability of the Russian energy grid. The higher fuel prices can impact Russian society, encouraging discontent in Russia. The sanctioning regime impacts Russia in many sectors, but the diversification applied by Russian authorities is helping in rebalancing the economy. Even if some issues are not clarified with China – the visa question and the difficulties, mostly for Russians, occurred between the different systems of payments – the presence of these two big energy-consumer markets is sustaining the Russian war effort.
Questions:
- What is the future of the Sino-Russian relationship amid a sanctioning regime for the Kremlin?
- Will Ukraine succeed in disrupting the energy grid of the Russian Federation?
- Could a tougher sanctioning regime applied to Russia from the European Union be a game-changer in the conflict in Ukraine?
Further readings:
