Between the Iran War and Ukrainian Drones: How Strikes on the Oil Sector Are Affecting Russia

Ukraine’s New Capabilities in the War

Over the course of the war, Ukraine has suffered a wave of attacks on its infrastructure. According to the World Bank’s latest assessment, between 2022 and 2025 Russian forces destroyed EUR 22 billion worth of Ukraine’s energy infrastructure. Rebuilding it would cost at least EUR 80 billion.

During the first few years of the war, Ukraine’s ability to respond in kind and carry out larger strikes on targets in Russia was limited. When energy infrastructure was attacked at all, it was more often local, near the border or the front line  –  fuel depots. Striking targets deep inside Russia was difficult  –  partly because Ukraine lacked the means, and partly because even the means it did have (for example, longer-range missiles received as aid from Western countries) were often prohibited from being used against targets on Russian territory itself.

The biggest change in the intensity of Ukrainian strikes on targets in Russia occurred over the past couple of years, as Ukraine has been actively financing the expansion of its own defense industry. This matters both for increasing the supply of weapons and ammunition to its units, and for reducing dependence on direct arms-supply support from its Western allies.

Ukrainians have successfully developed both missile and long-range drone capabilities. When attacking Ukrainian cities, Russia also frequently uses large numbers of cheap drones, such as the Iranian ”Shahed” (produced in Russia as the ”Geran-2”). Over time, Ukraine adapted this exact tactic; the main hurdle was building up sufficient manufacturing capacity for such unmanned aerial vehicles.

But Ukraine has succeeded  –  the country’s armed forces now use the domestically produced ”An-196 Liutyi”, ”UJ-26 Bober” and ”Fire Point FP-1” drones, which can fly a distance of 1,000 km or more. A domestically produced missile industry has also been developed, for example the ”FP-5 Flamingo”, a missile capable of hitting targets as far as 3,000 km away. These drones and missiles are useful because they can be produced relatively cheaply, meaning large numbers of them can be used at once.

This creates the same problem for Russia that Russia once posed for Ukraine  –  it is difficult, and expensive, to shoot down every aerial target. But for some facilities, such as fuel storage sites and various plants holding large amounts of explosive and flammable materials, a single drone or missile hit is enough to cause serious damage.

Still, Russia is a large country, and its critical energy facilities are geographically dispersed, which is why Ukrainian strikes back in 2024 did not have as significant an impact on Russia’s energy sector. Even when refineries were knocked offline or had their output sharply reduced, their wide distribution and sheer number across Russia made it possible to increase output at other operating plants and so avoid supply disruptions. A larger scale of attacks was needed to produce a more serious effect.

What Impact Are the Attacks Having, and How Is Russia Trying to Soften It?

In 2026, as Ukrainian strikes intensified and Russia lost a significant share of its oil-refining capacity, the war’s effect began to be felt by ordinary people too. In some areas fuel shortages emerged, limits were placed on how much fuel one person could buy, and queues began forming at petrol stations. Petrol prices in Russia in August have risen by about 17 percent compared with the same period a year earlier. So alongside the fuel shortages, people are now grappling with price inflation, albeit still relatively moderate.

To curb broader price spikes, Russian authorities have deployed several interventionist measures. One of them is the fuel-price compensation mechanism financed through the state budget. When oil prices are high, the Kremlin uses budget funds to compensate fuel suppliers for the losses they incur by selling fuel domestically at lower prices than abroad. At the same time, Russia has taken steps to ban petrol exports, and this summer, for the first time, it also banned diesel exports.

Through part of these measures, Russia is trying to create an artificial supply surplus at home  –  unable to export refined products, companies have no choice but to sell them on the domestic market. Keeping prices low in this way, through boosting supply, damping, and various trade restrictions, costs Russia a considerable amount in budget spending  –  funds that could otherwise be directed toward further financing its military aggression.

Fig. 2 Russian crude oil production and its consumption by refineries, million barrels per day. Compiled by the author based on OPEC (2023–Q2 2026), UNN (June 2026), Investing (July 2026 production) and Moscow Times / Bloomberg (July 2026 consumption) sources

Most of the problems at present stem specifically from lost oil-refining capacity. Refineries were what allowed the country to be supplied with the main oil products used by businesses and households  –  diesel and petrol. Some of these products were also exported to other countries, generating additional revenue. At present, because so many refineries are offline and because of the export restrictions mentioned above, Russia’s oil business can, in practice, only export crude oil.

Crude oil, later refined in other countries, can be imported back into Russia in the form of diesel or petrol. That is precisely why reports have appeared indicating that Russia has begun importing refined oil products from other countries, such as India and Belarus, and is also negotiating with Kazakhstan over the possibility of refining Russian oil there and later importing the resulting products back.

What Ukraine Is Aiming For, and How the War in Iran Is Affecting the Situation

Ukraine’s armed forces are not letting Russia catch its breath. Recently, more and more attacks have been recorded targeting Russian sea port infrastructure or even merchant vessels. According to Ukraine’s own reports, in July 2026 more than 170 Russian tankers and other merchant vessels were targeted in the Black and Azov Seas. Ukraine’s armed forces frequently target vessels of the so-called ”shadow fleet,” which are used to circumvent the sanctions imposed on Russia. In this way, Kyiv is also seeking to curb Moscow’s ability to export crude oil  –  traditionally the largest revenue-generating category of Russia’s mineral-product exports.

If oil exports could be significantly disrupted, one of the Kremlin’s key sources of budget revenue would be undercut. At the same time, the attacks also limit the ability to import oil products that could help stabilize the situation domestically. The aim is also to bring the war home to Russian society  –  to make the war felt by a population that, thanks to the Kremlin’s efforts to maintain stability at home, may otherwise have experienced little direct impact on daily life.

Still, cutting off export channels is an important tactical move as fighting continues in Iran and the Persian Gulf. Although various peace agreements have already been announced several times, the Strait of Hormuz  –  critical to global oil trade  –  remains either closed or able to operate only at limited capacity. For this reason, since the start of the US and Israeli intervention in Iran, Brent crude oil prices rose from USD 70 per barrel in February to as much as USD 118 per barrel in April, and currently remain at an elevated level amid continued uncertainty over the prospects of a ceasefire in the Persian Gulf.

Such a situation offers fertile ground for the Kremlin. According to the Institute of International Finance’s assessment, for 2025, in order for Russia to balance its budget from oil revenues without running a deficit, oil prices needed to be at least USD 77 per barrel. Sanctions and trade restrictions since the start of the war have prevented Russia from selling oil at market prices. The war in Iran could therefore have created conditions for exporting more Russian oil, or perhaps even motivated some countries to take a softer stance on maintaining sanctions.

Ukraine’s drone and missile campaign against Russian energy facilities disrupts the ability to take advantage of this situation. Attacks on oil-export infrastructure have the greatest impact in this regard. The damage to refineries causes extensive long-term damage and increases pressure and disruption within the country. But at the same time, destroying export (and import) infrastructure undermines, over the long run, the Kremlin’s ability to keep earning revenue from what is arguably Russia’s most profitable export industry –  the commodities trade.

What This Already Means for Russia’s Economy

Although Ukrainian strikes have caused considerable damage to Russia’s oil industry, with the consequences already being felt today, Russia still retains substantial strategic reserves and extensive infrastructure. Moreover, such facilities do not lose all of their operational capacity even after major explosions. Some of the damaged infrastructure in Russia will be rebuilt, and some of the less-affected facilities very quickly  –  after the 2024 attacks, damaged refineries were quickly repaired, such as the one in Ryazan. So it cannot be expected that the Kremlin will become completely cut off from global oil trade, regardless of how intense the attacks are.

”Reuters” reported that Russia’s July 2026 budget revenues from oil and gas were expected to rise by 60 percent compared with revenues a year earlier. Meanwhile, according to ”Bruegel” think tank expert Marek Dabrowski’s assessment, in the first half of 2026 Russia’s revenues from oil and gas exports were about RUB 3.7 trillion (EUR 40 billion)  –  that is, RUB 1 trillion (EUR 10 billion) less than in the first half of 2025 (RUB 4.7 trillion, or EUR 50 billion). The data shows a larger rise in revenue from March onward, though it stabilized in later months. Still, it is important to consider that these revenues would likely have grown more had it not been for the destruction of infrastructure. In addition, because of lost refining capacity, some of the oil is later imported back into Russia in the more expensive form of refined products. So reports of higher revenue from oil trade do not necessarily reflect the difficult economic situation arising from the losses Russia is experiencing. This is illustrated by Russia’s own central bank, which in July 2026 cut its forecast for annual GDP growth to zero.

Also, just as Ukrainians are seeking solutions and implementing new measures to protect their critical infrastructure, the Kremlin will undoubtedly have to follow a similar path. Some oil infrastructure is already being covered with protective measures, such as anti-drone netting. However, as the damage inflicted in recent months shows, these measures are not sufficient. Unless a ceasefire were reached, it is doubtful that Ukraine would stop using the drone and missile capabilities it has newly developed and expanded. This will mean that Russia will have to invest in the security of its energy system and in new air-defense measures in order to keep its economy operating normally.

Ukraine’s strike campaign is already producing important strategic gains: Russia is having to take additional measures to manage rising domestic prices, it is struggling to fully exploit the export-revenue potential of the Iran crisis, and costly critical infrastructure is being destroyed. This also creates tension within society, serving as a reminder that the war is taking place right on Russia’s borders and even within the country itself.

A question arises as to whether Ukraine’s decision to intensify these strikes in recent months was a response to the global energy impact of the war in Iran. After all, the oil prices driven up by that conflict could have given the Kremlin an excellent opportunity to offset the losses it has incurred from its war effort and from sanctions.

Although Russia could have increased the volume of its oil exports, Ukraine’s actions reduced its ability to capitalize on the situation. Moscow was forced to spend its own money importing oil products  –  money that could otherwise have gone toward financing the war. With economic growth slowing sharply in 2026, Russia faces a growing strategic dilemma: how to protect its infrastructure against increasing aerial attacks. In short, Ukraine’s drone campaign has caused not only short-term losses from disrupted fuel supplies, but also long-term costs of rebuilding and protecting infrastructure  –  and it has brought the reality of the war closer to the everyday lives of much of Russia’s population.