By Galina Korol | 2024-04-15

KYIV -- Western sanctions are cutting into Russia's ability to repair its oil refineries, industry insiders and energy analysts say, amid increasing attacks by Ukrainian drones on key facilities.

To illustrate the problems that have arisen, sources told Reuters about the breakdown of equipment at the NORSI refinery near Nizhny Novgorod.

"When engineers at Russian oil firm Lukoil discovered a turbine had broken at their largest refinery on January 4, they quickly realized the problem was far from trivial," Reuters reported April 4. "There was only one company that knew how to repair the gasoline-producing unit at the NORSI refinery. .... The problem was that the company is American."

After the start of Russia's full-scale war against Ukraine, the company that handled the oil machinery ceased its operations in Russia.

"They [the engineers] rushed around to find spare parts, and they couldn't find anything. Then the whole unit just stopped," a source close to Lukoil told Reuters.

The KK-1 catalytic cracker, which was used to convert heavy hydrocarbons into gasoline, is still out of commission.

Consequently, according to two Reuters sources, the NORSI refinery -- the fourth-largest refinery in Russia -- has reduced its gasoline production by 40%.

Russia is having trouble repairing its refineries, Ukrainian analysts have noted too.

"We don't have a lot of information about the nature or extent of the damage, but ... it's hundreds of millions of dollars for the repairs alone," Serhii Kuiun, an energy analyst and director of the Ukrainian A-95 Consulting Group, told Kontur.

The Russian refineries were built with and operate mainly on Western equipment, which is impossible to replace with Chinese equipment.

"This is equipment you can't steal and bring in your pocket somewhere as contraband," Oleh Belokolos, director of Ukraine's Center for National Resilience Studies, said April 4 on a YouTube program hosted by journalist Nataliia Moseichuk.

"There's a huge amount of equipment that was made in Germany and France. There are special substances that are used in manufacturing technology, and you can't procure any of that just like that," he said.

Drones with artificial intelligence, weak air defense

The drone strikes that Ukraine has been launching since the beginning of the year have created this situation at Russia's oil refineries.

"Ukraine has attacked 13 oil refineries, and nine of them have been damaged," Volodymyr Omelchenko, director of energy programs at the Razumkov Center, said April 7 on Espreso, a Ukrainian TV channel.

"There's rather substantial damage. For example, there's the refinery in Kstovo, and the Ryazan refinery was also critically damaged. ... Ukraine 'helped' Russia eliminate more than 14% of the total capacity of its own refineries," he said.

There are more than 30 large oil refineries in Russia, with a production capacity of 330 million tons per year, Omelchenko noted. More than 70% of these refineries are in European Russia.

"If there are large-scale strikes, especially on the wells that pump crude oil for export, those will be like real sanctions on Russian oil exports since Russia won't be able to replace that equipment either," Taras Zagorodniy, a political analyst and managing partner of Ukraine's National Anti-Crisis Group, told Kontur.

Ukraine is able to destroy the Russian oil refining industry, and that help can come from drones, which can travel 1,000km into Russia, say industry watchers.

"We're ... already seeing that we have a set of drones that can even fly more than 1,000km," said Oleg Zhdanov, a veteran of the Soviet and Ukrainian armies, military analyst and reservist colonel for the Ukrainian general staff.

Moreover, Ukraine continues to improve its drones by the day and now is even using artificial-intelligence-equipped drones to hit Russian refineries.

"It's called electronic vision when these drones can pinpoint the target," Zhdanov explained. "They fly all the way to the target but instead of immediately closing in on it, they make a semicircle to check their surroundings, and then they attack the right spot rather accurately."

Ukraine's attacks on oil refineries are revealing major gaps in Russia's air defense system, say analysts.

"The deeper you go into Russia, the less air defense there is," Zhdanov told Kontur. "During the last strike on the refinery in Tatarstan, [the Russians] didn't even attempt to use firearms. In response to the preliminary strike in Kuibyshev, they did try to shoot down the Ukrainian drone but with assault rifles, not air defense systems."

As a result, Ukraine can now glean additional bonuses, Kuiun said.

"We understand that there could also be military repercussions since we're seeing that they're already thinking about how to reform their air defense system, meaning that they're going to take away from some fronts and shift to others," he said.

"Theoretically speaking, they're now going to move this air defense system to a refinery, and that gives us the opportunity to work on airfields," he said. "At the same time, the media and reputational damage is severe because the entire planet ... is aware that things aren't so great in Russia."

Is the Russian market doomed?

Fuel is a key instrument of Russian warfare, say observers.

"The sanctions have forced Russia to sell its fuel and raw materials in unprofitable areas. Whereas before it was selling all of this to Europe, and it took two or three days for a tanker to get there, now it's sending fuel to Brazil, Saudi Arabia and India," Kuiun told Kontur.

"We saw one revealing route, where it took a tanker three months to get there," he said. "Whoever sends the tanker pays for all of this, and as a result you ultimately pocket much less money than in the past, and we're talking about huge sums here."

To further stop Moscow's war machine, the production of fuel needs to be disrupted, say observers.

"In Russia a fuel shortage on the domestic market is gradually starting to build. It will now be interesting to see what it does: either it'll reduce supply contracts, or it'll close off the domestic market," Zhdanov said.

If Ukraine continues to strike refineries at the same pace, the domestic market will suffer inevitable effects, said Zhdanov.

"The shortage will emerge more broadly and acutely," he predicted. "In Russia, from an economic standpoint, the industry is already being micromanaged. Wholesale prices for fuel have risen, while the government continues to ... prohibit [retailers] from raising prices."

"Small operators will start to go bankrupt ... then when these gas stations close, that could create lines and a shortage on the fuel market," said Zhdanov.

It is therefore important to stay patient because "Ukraine found the right nerve and needs to keep hitting it," Zagorodniy said.