Russia's Oil Export Flow: 40% Capacity Lost, Prices Surge

The immediate financial shock is stark: Ukrainian drone strikes have shut down about 40 per cent of Russia's crude oil export capabilities, or roughly two million barrels per day. This is the most severe oil supply disruption in the modern history of the world's second-largest exporter.

The attacks have systematically targeted the core of Russia's western export infrastructure. All three major western ports-Novorossiysk on the Black Sea and Primorsk and Ust-Luga on the Baltic Sea-have been hit, along with key pipelines like the Druzhba line. The repeated, damaging strikes on the largest Baltic terminal, Ust-Luga, have been particularly disruptive. The facility, which exports about 700,000 barrels per day, has been hit three times in a week, with one attack causing a major fire that the regional governor acknowledged.

This flow shock directly attacks the revenue stream underpinning the Russian economy. Oil and gas account for around a quarter of the state budget, and the disruption comes as prices have surged above $100 a barrel. The immediate impact is a massive, forced reduction in the volume of money flowing out of Russia via its traditional European routes.

The Price Windfall

The financial picture is a study in conflicting forces. On one side, the physical export flow is collapsing, with 40 per cent of Russia's crude oil export capacity shut down. On the other, the price mechanism is delivering a powerful windfall. Russian fossil fuel export earnings rose 7% in February to EUR 492 million per day, driven entirely by higher prices despite only a marginal volume increase.

This price surge stems from a global supply shock. The closure of the Strait of Hormuz has nearly brought Urals crude to parity with Brent, its global benchmark. This shift has been a lifeline, rescuing Russian revenues from a steep decline. The U.S. recognized this dynamic by temporarily lifting sanctions on Russian crude, a move that directly injects more revenue into the Kremlin's coffers.

The policy response confirms the windfall's impact. The Russian government has dropped plans to cut budget spending, a reversal from earlier this month when officials were weighing a 10% reduction. Instead, officials are now considering channeling the unexpected oil revenues into military spending, as the war in Ukraine continues.

The Liquidity Stalemate

The Kremlin is navigating a stark liquidity stalemate. On one side, it has earmarked 12.9 trillion rubles ($157.4 billion) for defense in 2026, a major budget item that must be funded. On the other, the war is inflicting physical damage on domestic infrastructure, with key refineries like Saratov and Volgograd shut down by Ukrainian drone strikes. This reduces Russia's ability to process crude into higher-value products, constraining its domestic economic output.

The financial buffer is substantial but not infinite. Surging oil prices have driven export revenues to $2.48 billion last week, their highest level since April 2022. Analysts project an additional 3-4 trillion rubles ($36.6-48.8 billion) in oil and gas revenues this year if Urals averages $75-80 per barrel. This windfall is sufficient to narrow the budget deficit and has already allowed officials to drop plans to cut budget spending, even as they consider funneling more cash into the military.

The economic outlook remains anchored. Despite earlier discussions about lowering the 2026 growth forecast, officials are unlikely to significantly downgrade the country's 2026 economic growth forecast of 1.3%. The strong oil revenues provide the fiscal space to maintain this trajectory, even as the war continues to drain resources and the damage to export and refining capacity creates long-term structural vulnerabilities.