The Russian refining industry severely damaged in the Russia-Ukraine war

The Russian Ministry of Energy has also introduced a measure to temporarily lower fuel quality standards, permitting the production, import, and distribution of gasoline with higher sulfur content—the first such relaxation since 2016. This measure remains in effect until July 1, 2027. It allows fuels compliant with Euro-2, Euro-3, and Euro-4 standards—older and more lenient than current requirements—indicating severe damage to Russian refineries’ secondary processing facilities, including crude distillation units, hydrocrackers, hydrotreaters, and reformers. At the same time, Russia has relaxed fuel blending requirements, permitting naphtha enhanced with octane boosters to be used directly as gasoline. Although these measures help stabilize the domestic fuel market, they come at a cost: high-sulfur fuels may damage vehicle engines or cause degradation and deactivation of emission-reduction catalysts—which require sulfur-free fuel to function properly. To further secure domestic fuel supply, Russia has begun importing gasoline. Although gasoline has been received via rail from Belarus and Kazakhstan, the refining capacities of these two countries cannot fully compensate for Russia’s current shortfall. Russian oil companies have also turned to maritime imports: shipments from Morocco, South Korea, India, and Turkey arrived progressively in July and August. At the end of August 2026, Russian President Vladimir Putin signed a decree authorizing the government to temporarily take control of private enterprises or infrastructure deemed “critical” if their owners fail to implement adequate security measures or delay restoration of operations. The decree covers energy-sector facilities broadly—including independent refineries. Given that refineries are considered vital to ensuring their own security against ongoing attacks, this decree intensifies the challenges faced by oil companies: mounting security and maintenance costs amid persistent strikes. Attacks are also affecting Russia’s oil and gas revenues. Unless a sustained ceasefire is achieved between Ukraine and Russia, attacks on Russian oil infrastructure are likely to continue, further straining the Russian oil industry’s revenue. According to Russia’s Ministry of Finance, oil companies received 1.5 trillion rubles (approximately $18 billion) in subsidies between April and August 2026—including compensation to refineries under the so-called “price suppression mechanism,” which offsets the gap when export prices exceed domestic fuel prices. Although the Middle East conflict has driven up global crude prices—supporting oil and gas revenues—Russia’s total fiscal revenue from January to August 2026 was still nearly 17% lower year-on-year, amounting to only 5 trillion rubles. Meanwhile, Russia’s overall budget deficit continues to widen: it reached 5.8 trillion rubles in the first eight months of 2026—a 150% increase over the same period in 2025—and has already surpassed last year’s full-year deficit of 5.6 trillion rubles. The current frequency and intensity of attacks suggest that Russia’s crude processing volumes will struggle to recover significantly from recent levels. The workload required to restore damaged equipment to operation is increasing, while the cumulative impact on refinery reliability remains unclear. Consequently, the International Energy Agency (IEA), in its latest monthly Oil Market Report, has lowered its forecast for average daily processing capacity at Russian refineries for the remainder of 2026 and throughout 2027 to 4 million barrels per day.

Can the West’s ‘most重磅 petroleum sanctions’ force Russia to capitulate?

After months of negotiations, the European Union finalized a $60-per-barrel price cap on seaborne Russian crude oil. The G7 and Australia also agreed to adhere to this price ceiling. The price cap entered into force on December 5, the same day the EU’s ban on seaborne imports of Russian crude oil (hereinafter the “import ban”) took effect. This marks the long-awaited implementation of the West’s most consequential petroleum sanctions against Russia since the escalation of the Russia-Ukraine conflict in February. Under the price cap, the coalition prohibits companies under its jurisdiction from providing services—including shipping, insurance, and financing—for Russian oil sales unless the oil is sold at or below the capped price. If Russia or its buyers trade at prices above the cap, they must seek alternative service providers outside the coalition. The G7 and the EU hope this new round of sanctions will curtail Russia’s “war chest.” Yet Bloomberg columnist Javier Blas argues that merely disrupting the liquidity of Russian oil revenues is unlikely to force Russia to capitulate: “The same policy failed to subdue Iran and Venezuela—both of whose fiscal conditions are far weaker than Russia’s today.” On the eve of the price cap’s entry into force—December 4—Russian Deputy Prime Minister Alexander Novak reaffirmed Moscow’s refusal to accept the Western-imposed ceiling, stating that Russia would sell oil exclusively at market prices—even if forced to cut output. “The Compromise Ban” Oil is the lifeblood of the Russian economy and a critical funding source for the Russian military’s “special military operation.” Since the operation began, Western sanctions have hampered Russian crude production and sales; yet, rising oil prices following the escalation of the Russia-Ukraine conflict have enabled Russian oil exports to generate approximately $20 billion per month. According to an IEA report, Russia’s oil revenue peaked at $21 billion in June, declining to $17.3 billion in October—but still exceeding pre-war levels. Starting December 5, the EU—Russia’s key market—will ban imports of crude oil produced in Russia and shipped by sea. This measure has been dubbed the “compromise ban”: Bulgaria is granted an exemption allowing it to postpone implementing the ban until the end of 2024, as its refineries were designed solely to process Russian crude; additionally, pipeline transport remains unaffected, enabling landlocked Hungary, the Czech Republic, and Slovakia to continue importing Russian crude via the Druzhba pipeline—though Germany and Poland have pledged to halt pipeline imports by year-end. The import ban forms part of a broader EU sanctions package adopted in early June. Under the June plan, the EU aims to fully prohibit seaborne imports of Russian crude oil by December 5 and seaborne imports of Russian refined products by February 5, 2023. Beyond the import ban, the EU will also restrict EU-based service providers from offering insurance, financing, and other services for Russian crude exports to third countries. Concerned that a full EU ban might trigger a sharp withdrawal of Russian oil from global markets—driving up world oil prices and unleashing uncontrolled inflation—the U.S.-led G7 proposed capping the price of Russian crude, aiming to constrain Russia’s oil revenues without jeopardizing global supply. Although some EU member states harbor doubts about the practical enforcement of the Russian oil price cap, the EU nevertheless paved the legal groundwork for the mechanism in its October sanctions package—though it refrained from specifying the actual price ceiling.

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