Russia's Oil Paradox: Higher Prices, Broken Refineries

Exports: Blocked at the Ports, Rewarded at the Pump

Ukraine’s shift toward striking export terminals has been particularly damaging. By late March 2026, drone attacks on the Baltic ports of Primorsk and Ust-Luga, along with the Druzhba pipeline, had knocked out at least 40% of Russia’s oil export capacity — roughly 2 million barrels per day . Loadings at Russia’s two largest Baltic terminals were repeatedly suspended after strikes triggered fires, and the Black Sea port of Novorossiysk fell behind its loading schedule .

Yet the Hormuz crisis handed Moscow a simultaneous price windfall. With roughly 20% of the world’s traded oil suddenly unavailable, global buyers scrambled for alternatives. The discount on Russian Urals crude — which had been wide under Western sanctions — collapsed. Some traders even attempted to sell Russian crude at a premium above the Brent benchmark . The US Treasury was forced to issue a temporary 30-day sanctions waiver on Russian oil purchases to prevent an even deeper global supply crunch .

Russia’s seaborne crude exports had averaged 3.39 million barrels per day in the four weeks to mid-February 2026, before the worst port strikes took hold . Since then, physical volumes have fallen substantially as export infrastructure has been damaged, even as the per-barrel price Moscow receives has risen sharply. February 2026 export revenues collapsed to $9.5 billion — the lowest since the invasion began — driven by a 9.2% month-on-month drop in seaborne volumes, though the subsequent price surge has reversed that trajectory entirely .

The Domestic Fuel Crisis and Export Bans

The cost to Russia’s domestic refining sector has been staggering. In 2025, Ukrainian strikes inflicted more than 1 trillion rubles ($12.9 billion) in combined direct damage and lost profits on Russian oil companies, according to Yevgeny Borovikov, deputy CEO of the Russian insurance broker Mains . Direct physical damage exceeded 100 billion rubles, while indirect losses and lost profits pushed the total above the $13 billion mark .

Pipeline supplies of crude to Russian refineries fell to their lowest level in 15 years, with facilities receiving just 228.34 million tons in 2025 — a 1.6% year-on-year decline . The affected plants previously accounted for more than 30% of Russia’s gasoline production and roughly 25% of its diesel output .

In response, Moscow imposed a gasoline export ban in 2025, followed by a jet fuel export ban in June 2026 that will remain in effect through at least November 30, 2026 . According to Bloomberg, however, the jet fuel ban is expected to have a “negligible impact” on international markets precisely because Russia’s refining system is so degraded that it exports very little fuel to begin with. Average daily jet fuel exports in the first four months of 2026 fell to just 28,000 barrels, with Turkey as the main buyer .

Moscow’s Revenue Equation: More Cash, Less Capability

The interplay between these two crises has produced a net financial gain for the Kremlin. Stratfor concluded in May that Ukraine’s campaign acts as a financial drain on Russian oil companies, but “global oil deficits buoy the Kremlin’s revenues” . Bloomberg reported that the Russian economy has strengthened significantly due to rising oil sales driven by the Iran war, with experts estimating Russian oil exports could increase by as much as $40 billion if elevated prices persist through the end of the year .

But this revenue surge masks a structural downgrade. Russia can no longer capture the higher margins from selling refined products like diesel, jet fuel, and gasoline. Instead, it is forced to export larger volumes of raw crude at a time when refining margins globally are extraordinarily wide due to the Hormuz shock. The IEA expects Russian refinery runs to remain suppressed at just under 5 million barrels per day until at least mid-2026, with any recovery to 5.4 million barrels per day unlikely until later .

The fundamental irony for Moscow is clear: the Hormuz crisis has made Russian crude more valuable than it has been in years, while Ukraine’s drones have ensured Russia cannot fully capitalize on the bonanza by stripping away the downstream capacity that adds the most value. The Kremlin earns more per barrel, but from a smaller, less sophisticated, and increasingly vulnerable export machine.