Ukraine Strikes Major Russian Oil Refinery in Escalating Drone Attacks

On January 31, Ukraine launched a significant strike on the Lukoil-Volgogradneftoperobka oil refinery, one of Russia’s largest in terms of capacity, as part of its ongoing efforts to target Russian infrastructure vital to Moscow’s war effort against Ukraine.

The Ukrainian Armed Forces issued a statement confirming the attack, which is seen as a part of Ukraine’s broader strategy to hit critical infrastructure tied to Russian military operations. The refinery, located in the Volgograd region, processes approximately 14 million tons of oil annually, producing essential products like gasoline, diesel, and jet fuel, which are crucial for the Russian military.

Local officials, including Volograd’s Governor Andrei Bocharov, acknowledged that fires had been started at the facility but said they'd been started by debris from the defense systems knocking the drones out of the sky.

The refinery has been a frequent target in the conflict, including a prior attack in May 2024. In recent months, Ukraine has intensified its drone strikes on Russian refineries, aiming to disrupt the flow of fuel that powers Moscow’s military efforts.

This move is seen as a significant blow to Russia's ability to supply its troops with fuel for ongoing military operations, as well as reducing its capacity to export oil, which funds the war effort.

Ukraine’s strategic strikes also have wider implications for global oil markets. Analysts suggest that disrupting Russia’s oil exports could tighten global crude supply, driving up oil prices. Goldman Sachs recently predicted that Brent crude could surge to $93 per barrel if sanctions successfully curb oil exports from Russia and Iran by 1 million barrels per day.

However, oil prices have been on a downward trend for the past two weeks, falling around $2 per barrel. Geopolitical pressures, including potential tariff actions on Canada and Mexico by February 1, and OPEC’s production plans, could contribute to further price fluctuations. Despite the downward trend, analysts remain watchful of developments that may alter the market balance, especially with OPEC+ resisting adjustments to its production strategies.