Ukraine

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Russia’s federal budget revenues are set to decline by hundreds of billions of rubles. At the same time, Ukrainian strikes on oil refineries are leading to refinery shutdowns that could force producers to reduce oil output. Russia's oil industry not only contributes to the federal budget but also receives subsidies and tax breaks from it, meaning the losses could grow even larger. If oil production declines while budget payouts continue, the budget deficit could multiply several times over. In that event, even the state's financial reserves would not be enough to cover the shortfall.

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Russia has 38 medium- and large-scale oil refineries with a combined processing capacity of about 330 million metric tons per year. In 2024, they processed approximately 267 million metric tons of crude, the lowest figure since 2012. The financial results of individual refineries are no longer made public — instead, since 2022, all significant figures have been consolidated at the level of their parent holding companies. As a result, the direct revenue losses caused by shutdowns at specific refineries can be estimated only indirectly, by examining the declining performance of the parent groups and exchange-traded indicators for Russia's domestic petroleum products market.

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The industry's direct losses in 2025 alone were estimated at more than 100 billion rubles ($1.3 billion), and when estimates of lost revenue are included, the figure exceeds 1 trillion rubles ($13 billion). For the federal budget, the key issue is that insufficient refining capacity forces companies to cut oil production, largely because of infrastructure bottlenecks that limit the transportation and export loading of crude oil.

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The Power of Siberia pipeline reached its designed capacity, allowing Gazprom to supply more natural gas to China ... – 38.8 billion cubic meters. The compensation, however, is far from equivalent. Prices for gas sold to China are linked to a basket of petroleum products and are subject to a substantial discount, while the lack of alternative export routes leaves Moscow with little bargaining power.

The lack of alternative export routes leaves Moscow with little bargaining power in selling oil to China.

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Lost refining capacity cannot be restored quickly using domestically produced equipment, and anti-drone defenses at refineries are not enough to solve the problem.

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[Russian] policymakers must now contend with an entirely new factor: government payments to subsidize fuel imports under a new mechanism. It is one of the measures the Russian government has introduced to address the country's worsening fuel crisis. When oil prices are high — a state that would ordinarily benefit the federal budget — the Russian government is obligated to pay hundreds of billions of rubles to domestic oil companies while also providing compensation to fuel importers.

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