In an Easter Sunday interview in 20+ Polish papers [POLISH & ENGLISH below], I said White House reasons for Ukraine not to hit Russian refineries don’t make sense. The “elephant in the room” alarming DC is that Ukraine can now disrupt Primorsk, UST-Luga and Novorossiskya oil ports, needed for 60% of Russian exports.
This would not only deny Moscow vital oil revenues needed to wage war, it would also spark a spectacular global oil market shock. I explain that the USA and allies can urgently prepare for this, while the Ukrainians are still maintaining strategic patience.
“O’Donnell told Newsweek that that if Ukrainians really wanted to hit oil exports, they would go after Novorossiysk Fuel Oil Terminal in the [eastern] Black Sea and Primorsk Oil Terminal at the end of the Baltic Pipeline System.
“‘These are the two major exports sites for Russian oil and they are demonstrated to be within range of aerial drones and perhaps, in the case the Black Sea, their seaborne drones,’ he said. ‘If they really want to cut Russia’s oil income, they would go after those ports and they haven’t—that might be in deference to Americans concerns.’“ (Russia Faces Major Gas Headache After Ukraine Strikes, Newsweek, article by Brendan Cole, Mar 25, 2024.)
Last week, Newsweek (USA) twice cited my analysis of Ukrainian drone strikes. In one instance, I had the honor of following an interview with General Ben Hodges, former Commander of US Army, Europe, with whom I concur in regretting the USA opposition.
(Aside: I hope to have an Op-Ed, perhaps tomorrow, in Europe, assessing that (i) the USA’s stated reasons versus Ukraine’s drone strikes to date do not make sense, and (ii) the “elephant in the room,” which must really have alarmed the White House, is that Ukraine’s strikes on refineries ipso facto demonstrate they COULD, if they so chose, disrupt anywhere up to 60% of Russian oil exports. Lastly,(iii) if the USA, EU and allies do not rapidly prepare non-Russian oil-sector producers for this eventuality, a global oil price shock could result.)
Here are the links to last week’s two new interviews/citations by Newsweek:
Interview 1/3: Kate Lycock of DW Radio’s Inside Europe interviewed me yesterday, on the historical role of fuel-denial in war, and the impacts of Ukraine’s drone strategy on Russia (first story, on 21 March)
Aside from some WW2 history, I identified two separate impacts we can see in the present Ukrainian campaign: a) The impact on Russian fuel deliveries to the war zones themselves and to the domestic Russian war economy, and b) their possible impact as a “force multiplier” for the oil-price cap sanctions on Russian oil exports, designed to deny Moscow its all-important oil revenues that are financing its aggression. I also speculated a bit as to how these strikes, together with Black Sea sea-drone operations, might be shaping coming Ukrainian offensive(s). (This show is also syndicated in the USA as I recall.)
2/3: on 20 March, I was also interviewed on the drone strikes by Voice of America’s Harry Ridgwell, while I was at the Berlin Energy Transition Dialogue, held at the German Federal Foreign Office. (See Video in LHS column.)
3/3: Lastly, I was quoted a couple times by Brendan Cole of the USA national magazine, Newsweek, on 18 March:
Note, there are new developments since yesterday, including Russia’s revenge strikes on Ukrainian infrastructure (reports are that 1 million Ukrainians have no electricity today) and on its Special Operations Headquarters. However, of the 30 Russian drones that swarmed to target this Kyiv building, every one was shot down.
Also, there are reports (Financial Times) that the USA is warning Ukraine that the strikes will draw retaliation and raise the price of oil.
Who cares! This has gone on for simply too long. There are vastly sufficient oil reserves in the world that can be tapped to fully replace Russian oil even if it were totally taken offline. After over two years of war, Washington and the EU Members should have by now begun a concerted effort to get sufficient new oil on line to enable blocking a high percentage of Russian exports from being exported to the world market
I talk about one possible approach to this in my DW interview, involving Denmark and Sweden inspecting and banning passage of sketchy Russian tankers through their economic zones in the Baltic Sea.
After two-plus years of war, there is no excuse to still be playing around with the oil price cap without either significantly lowing it — say, to $30/barrel as the Ukrainians suggest, in any case begin stepwise lowering it below the present $60, which would be a signal to producers to start developing new fields — and/or finding ways to block shipments more directly.
This is not to diminish the clever and difficult work people at especially OFAC and the USA Justice Department in Washington and their colleagues in London and Brussels have carried out to tighten and make more effective the oil price cap. However, as it stands, the cap is too high and a weak instrument.
The entire political preoccupation with keeping Russian oil on the market is fundamentally flawed, Signals must be given to the market that it will be step-wise taken off the market, which will instill/stimulate IOCs, NOCs and smaller firms to rapidly bring undeveloped oil reserves online to permanently replace Russian exports.
LAST: Here are some references for further reading that I found useful in my research.
Highly recommended, by my friend, the intrepid Михайло Гончар – Україна уразила вже третину найбільших російських НПЗ – Главредhttps://glavred.net/article/v-rossii-krasivo-gorit-ukraina-porazila-uzhe-tret-krupneyshih-rossiyskih-npz-gonchar-10550015.html (Translation: Russia is on fire: Ukraine has already hit a third of the largest Russian refineries – Interview with Michael Gonchar, March 14, 2024, 4:02 p.m, Ukrainian drones are reducing oil refining in Russia and creating a fuel shortage there, Mykhailo Gonchar believes.)
Ukraine Drone Strike Hits Refining Complex Deep in Russia || Peter Zeihan – YouTube (NOTE: added a gap to URL before ‘.com’ to prevent it displaying here) https://www.youtube .com/watch?v=86YrV2D-nB4
According to energy and geopolitics expert Tom O’Donnell, Ukrainian allies’ oil price cap, in conjunction with Ukrainian drones’ physical damage could be a significant hit to Russian revenues.
Tom O’Donnell, PhD, an expert on energy and geopolitics, sat down with Kyiv Post to explain what Ukraine’s attacks on Russia’s energy sector will mean for the larger Russian energy sector.
It sounds like a huge number. But how much do you think losing 12 percent of production, in a day, will affect Russia?
First off, although these refineries hit by Ukrainian drones yesterday represent about 12 percent of Russian production, experience shows that they might not each be totally impaired from production. Nevertheless, there are two particularly significant implications for Russia.
First, whatever percentage of Russian refined oil products this impairs, the damage will both deprive the war economy of needed export revenues and/or of much-needed fuels to keep the domestic war economy running.
Already, Russia had announced it will ban the export of gasoline from March 1 in order to tame prices for consumers in the runup to the presidential elections mid-month. In 2023 about 17 percent of Russian gasoline was exported.
What is the origin of the current price pressure?
The present price pressure is both a result of the demands of the war economy as well as previously successful Ukrainian hits on other refineries that began in January.
This gets to my second point – the successful refinery strikes of yesterday, involving a reported launch of 58 drones, as well as recent hits on a Russian domestic gas transmission pipeline, all demonstrate that the January successes were not one-off special operations, but rather the beginning of what will be a sustained Ukraine armed forces campaign capable of, over time, significantly disrupting Russia’s all-important oil and gas import revenues and internal refined-product supplies.
Kyiv has launched some of its largest air attacks on Russia this week ahead of the vote, which is set to hand President Vladimir Putin another six-year term in the Kremlin.
If Russia continues to lose refineries, which appears likely, what new complications will it create for Russia?
First, from a strategic point of view, it is important to see these physical strikes against Russian oil and gas infrastructure in conjunction with the sanctions efforts of the USA, EU and other allies aimed at reducing Russian oil profits. These drone strikes should be seen as a “force multiplier” to allied oil sanctions.
How so?
Consider that, with Russia no longer having the Druzba oil pipeline flowing into Central Europe due to EU sanctions, this has forced it to shift its Urals-region oil exports to seaports on the Baltic coast of Russia and to a new western-Arctic port. Hence, hitting any refining or export facilities inside Russia along this general Urals-oil export corridor has a significant effect on Russia sustaining export revenues. This oil mainly flows to Turkey, India and China, with Russian oil tankers representing the main users of the Suez and then the Red Sea. Due to sanctions, most of these ships are now either directly or indirectly Russian-controlled, to avoid the sanctions oil-price cap.
There has been a discussion in US-EU security-and-sanctions circles that these ships could be stopped for inspection by Sweden and/or Denmark in the Baltic, in the straights between their countries, and many might be refused passage due to having sketchy insurance and/or being unsafe, old vessels.
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What do you think of the oil price cap? Is it a good idea?
From the point of view of strategic impact, the allies’ choice of an oil-price cap has been, in my view, a weak and overly complex-to-enforce instrument. However, in conjunction with Ukrainian drones’ physical damage, the overall hit to Russian revenues might become significant.
Secondly, Ukraine has also hit refineries in Russia just east of its own territory, which will mainly undermine the region’s war economy and complicate supplying the massive demand from Russia’s invasion forces. This region already has chronic fuel-supply problems, with farmers last year protesting against a lack of diesel for harvests, causing Russia to ban diesel exports during that season.
Dr. Tom O’Donnell is Berlin-based and is a Global Fellow of the Wilson Center.
Jason Jay Smart, Ph.D., is a political adviser who has lived and worked in Ukraine, Moldova, Kyrgyzstan, Kazakhstan, Russia, and Latin America. Due to his work with the democratic opposition to Pres. Vladimir Putin, Smart was persona non grata, for life, by Russia in 2010. His websites can be found at http://www.JasonJaySmart.com / http://www.AmericanPoliticalServices.com / fb.com/jasonjaysmart / Twitter: @OfficeJJSmart
Related references for assertions I made in my interview – Tom O’D.
The Global Barrel 