Key Takeaways:
Ukrainian drone strikes have knocked out a third of Russia's refining capacity, triggering a fuel crisis that is now cutting diesel exports by two-thirds and forcing hospitals and fire services to compete for gasoline on the open market.
Russia's refinery throughput fell to 3.8 million barrels a day in June, down 1.5 million barrels since January, as sustained Ukrainian drone attacks on processing units pushed the country's fuel system into its worst crisis in decades, according to JPMorgan Chase & Co. research published this month. The drop in processing capacity has slashed Russia's diesel and fuel oil exports by roughly two-thirds from their peak, tightening global refined product markets and keeping crack spreads at elevated levels.
"The Russian refining system has shifted from episodic disruption to systemic impairment," said Natasha Kaneva, head of global commodities research at JPMorgan. "The secondary conversion units — hydrocrackers, catalytic crackers, reformers — have been repeatedly targeted, and these are far more complex to repair than simple distillation columns."
Russia's crude processing averaged 3.91 million barrels a day in the first 10 days of July, the lowest in 21 years, according to EA Analytics data cited by Barchart. Gasoline output dropped 17% year-on-year in June, while crude production fell to 8.7 million barrels a day — down about 600,000 barrels since January — as downstream bottlenecks constrained upstream output. More than 50 Ukrainian drone strikes have hit Russian energy infrastructure since March, damaging at least 24 of the country's 34 largest refineries, according to Bloomberg data.
The crisis has moved beyond fuel markets into Russia's public services. Canceled, unfulfilled or re-announced fuel tenders for hospitals, utilities and emergency services tripled in May and June compared with the same period last year, according to RBC-Ukraine. The Dynastia regional medical center in the Samara region found no bidder for 8,500 liters of AI-92 gasoline. A tender for 28,000 liters of AI-95 for the Daryna rehabilitation center in the Leningrad region collapsed. The fire and rescue service in the Stavropol region re-announced its fuel tender several times before securing a single supplier. Suppliers are walking away from fixed-price state contracts because fuel prices rise faster than the tender calendar, making retail and commercial sales more profitable.
Sales restrictions have spread to more than 40 Russian regions, and on July 9, Mordovia, the Nizhny Novgorod region and Astrakhan began rationing gasoline by license plate number — odd plates on odd days, even plates on even days. The shortages have reached areas with their own local refineries because supply is being diverted to Moscow. Attacks on refineries supplying the capital rose to 39% of all strikes in 2026, up from 22% in 2025, JPMorgan data show. Retail gasoline prices at independent stations have surged more than 50% above normal levels in some areas.
To cover the gap, Moscow bought 453,000 tons of Belarusian gasoline in the first half of 2026 — 20 times the volume from a year earlier — and has also approved imports from India, according to RBC-Ukraine. The government has banned almost all exports of gasoline, jet fuel and diesel, tightened fuel-grade specifications to allow lower-quality Euro 3 standard gasoline as a substitute for Euro 5, and approved tax amendments to incentivize higher blending ratios. These measures manage the shortage at the margin rather than repairing the underlying refining capacity.
Russia is the world's second-largest diesel exporter, supplying about 12% of global seaborne diesel trade at roughly 800,000 barrels a day, and the largest fuel oil exporter at about 16% of the global market, or 900,000 barrels a day, according to Vortexa data cited by JPMorgan. The collapse in Russian refined product exports has contributed to a global refining throughput decline of 8.2 million barrels a day since the start of the year, with Russia accounting for about 20% of that drop.
JPMorgan's base case assumes Russian refinery runs will recover gradually to about 4.5 million barrels a day by early 2027, with a full-year 2027 average of 4.7 million barrels a day. That forecast depends on Ukrainian drone attacks easing after Russia's September elections. The upside risk is that if strikes stop abruptly, damaged units could be repaired within one to two months. The downside risk is that Ukraine has demonstrated both the capability and willingness to conduct large-scale precision strikes deep inside Russian territory, and the key unknown is how long the campaign can be sustained.
The International Energy Agency warned last month that the Iran war's impact on global oil demand will be deeper than previously anticipated, projecting a decline of 1.1 million barrels a day in world oil consumption this year. But the refined product market faces a separate supply constraint from Russia that could persist even if broader geopolitical tensions ease. JPMorgan expects elevated crack spreads to continue into 2027 as Russian export capacity remains impaired.
This article is for informational purposes only and does not constitute investment advice.
