Russian oil revenues plunge amid Ukrainian drone strikes

Russia's oil sector, a cornerstone of its economy and a key funding source for its military operations, faced severe setbacks in August 2025. Revenues from crude oil and oil product exports dropped sharply to $13.51 billion, marking a decline of $920 million from July and hitting one of the lowest levels since the onset of the full-scale invasion of Ukraine in 2022. This downturn, as detailed in the International Energy Agency's (IEA) latest oil market report, stems primarily from intensified Ukrainian drone attacks on critical energy infrastructure, compounded by Western sanctions and fluctuating global oil prices. The disruptions have not only curtailed production and exports but also triggered domestic fuel shortages, amplifying economic pressures on the Kremlin.

Ukrainian drone strikes disrupt russian refinery operations

Ukrainian forces have escalated their campaign against Russian energy assets, targeting refineries and pipelines to undermine Moscow's war financing. In August 2025 alone, at least a dozen strikes were reported, crippling approximately 17% of Russia's total refining capacity-equivalent to about 1.1 million barrels per day (bpd). These attacks, often involving swarms of long-range drones, caused extensive fires, explosions, and operational halts at multiple facilities.

Key targets included:

The Volgograd refinery, operated by Lukoil, where drones ignited massive fires on August 14, leading to a complete shutdown.
The Syzran refinery in the Samara region, which suspended production after a fire erupted in early August.
The Krasnodar oil refinery in southern Russia, hit multiple times with explosions lighting up the area.
The Slavyansk and Afipsky refineries, also in the Krasnodar region, where drone debris sparked fires on August 13 and August 7, respectively.
The Saratov refinery, struck on August 10, resulting in an explosion and suspension of fuel production.
The Ryazan refinery, managed by Rosneft, which halted around half its capacity following an August 2 attack.
The Novokuibyshevsk refinery, another Rosneft-operated site, where primary oil processing ceased after a late-July strike spilling into August disruptions.
The Unecha oil pumping station in the Bryansk region, targeted on August 13 and 21, causing large-scale fires but reportedly not affecting crude flows through the Druzhba pipeline at the time.
The Novoshakhtinsk refinery in southern Russia, where a drone strike ignited a fire at the industrial site.
An oil depot in Sochi, hit on August 3, setting two oil tanks ablaze before the fires were extinguished.

Additionally, Ukrainian drone forces commander Robert Brovdi confirmed strikes on the Druzhba pipeline, a vital artery supplying oil to Slovakia and Hungary, resulting in "extensive fire damage." These operations represent a strategic shift, extending the conflict into Russia's economic heartland and demonstrating Ukraine's growing capability in asymmetric warfare.

Decline in oil exports and prices adds to revenue woes

The attacks directly impacted Russia's export capabilities. Overall oil and fuel exports fell by 70,000 bpd in August to 7.3 million bpd, with crude oil shipments decreasing by 30,000 bpd and refined products by 40,000 bpd. Russian crude production also dipped by 30,000 bpd to 9.28 million bpd, aligning with OPEC+ quotas but reflecting capacity constraints from the strikes.

Compounding the issue, the price of Russia's flagship Urals crude blend averaged around $63.4 per barrel in August, down 2.3% from July, though some assessments placed it as low as $56 per barrel amid widening discounts. This price remained below the original $60 per barrel cap imposed by Western nations, and a new European Union mechanism further reduced the effective cap to $47.6 per barrel starting September 3, 2025. Discounts for Urals crude to buyers like India widened to $3-4 per barrel due to U.S. pressure and tariffs, while similar offers appeared in China amid uncertainties in Indian purchases.

These factors have led to an oversupply on global markets, further depressing revenues. In response, Russia is poised to boost crude exports in the coming weeks to offset reduced refining output, but this may not fully compensate for the losses.

Broader economic implications for russia

The revenue slump is exerting immense pressure on Russia's state budget, which has long relied on energy exports for over 40% of its income. In the first seven months of 2025, oil and gas profits plummeted by 19% year-on-year, from 6.8 trillion rubles to 5.5 trillion rubles. The Russian Ministry of Finance, originally forecasting 10.9 trillion rubles from the sector for the year, revised this down to 8.3 trillion rubles, citing falling prices and a strengthening ruble.

Domestically, the strikes have sparked a fuel crisis, with gasoline shortages reported in more than 20 regions and prices surging to record highs. Queues at gas stations have become common, frustrating civilians and disrupting logistics. State-owned Rosneft, a major player, reported a 68% drop in first-half profits, while overall state oil and gas revenues fell 27% in July alone, widening the federal budget deficit.

The IEA warns that these developments are deepening Russia's economic slowdown, with oil export revenues hovering near five-year lows. Broader forecasts project Russia's GDP growth at just 0.9% for 2025, hampered by sanctions, military spending, and reduced energy income. The Kremlin has turned to alternatives like increasing coal production to mitigate gas shortages, but this underscores the vulnerability of an economy overly dependent on fossil fuels.

Escalation in the energy conflict

This surge in attacks marks a new phase in the Russia-Ukraine war, where energy infrastructure has become a frontline. Ukraine's strategy aims to raise the economic costs of aggression, forcing Russia to divert resources from the battlefield to domestic repairs and security. In retaliation, Russia has intensified strikes on Ukrainian energy facilities and extended a ban on refined oil product exports until October 31, 2025-a measure in place since March to stabilize its internal fuel market amid emerging shortages.

Western sanctions continue to play a role, with the EU planning a 2026 ban on imports of refined products derived from Russian crude. As the conflict persists, these dynamics could reshape global energy markets, potentially benefiting U.S. refiners through increased demand for alternative supplies.