The Russian government has been hit by a double whammy, forced to boost crude exports just as prices tumble following the reopening of the Strait of Hormuz, due to sustained Ukrainian drone strikes on key facilities reducing its refining throughput.

Russia is exporting crude oil at its fastest pace this year as repeated Ukrainian drone strikes on domestic refineries leave Moscow increasingly unable to process its own production.

Russian crude exports averaged 3.89mn barrels per day over the latest four-week period, the highest level recorded this year, as damaged refineries forced producers to divert more unprocessed crude onto international markets.

As IntelliNews reported, Russia’s oil sector is bruised but not broken, with refining volumes down 13.5% y/y after Ukraine escalated its drone strikes on production facilities.

The surge in export volumes, however, has failed to translate into higher revenues, just as the reopening of the Strait of Hormuz has caused the price of oil to tumble to $74 at the time of writing. That means the oil windfall the Kremlin was hoping for will evaporate quickly and leave the Ministry of Finance (MinFin) with a larger than anticipated budget deficit this year.

Weekly export earnings fell to $1.72bn from $2.02bn in the period ending June 14 as global oil prices retreated and growing expectations that Iranian crude exports will return to international markets after the US lifted decades-old sanctions on Iranian oil this month. Brent crude has fallen back to prices close to pre-conflict levels, erasing much of the geopolitical risk premium that briefly boosted Russian export revenues during the Gulf conflict.

The change comes at an awkward moment for Moscow. Russian producers are shipping more crude than at any point this year but earning less from each barrel sold, while domestic refining capacity continues to shrink under sustained Ukrainian attacks.

Earlier strikes focused largely on export terminals and storage facilities, temporarily disrupting shipments but leaving Russia's ability to refine crude largely intact. More recent attacks have concentrated on refineries themselves and have been leaving the terminals alone.

The Moscow refinery — one of the capital's principal fuel suppliers — was particularly badly damaged in a June attack and announced that repairs could take until the end of the year to effect. Similar attacks have damaged refining capacity across western Russia, reducing the volume of crude that can be processed into gasoline, diesel and jet fuel.

As refining capacity falls, domestic fuel markets are coming under increasing strain.

The government is reportedly considering a complete ban on diesel exports and may extend existing restrictions on gasoline and aviation fuel shipments in an effort to secure domestic supplies. Officials are also examining the possibility of importing refined products from Kazakhstan to add to imports already arriving from refineries in Belarus. The government may also increase domestic fuel subsidies to prevent shortages from translating into sharp price increases for consumers.