Russia Forced to Cut Oil Production Due to Export Decline - Reuters

According to information provided by Reuters, three sources in the oil and gas industry have reported that Russia will have to reduce its oil production due to a decline in exports caused by recent drone attacks on its infrastructure in the Baltic Sea. Over the past month, drones have actively targeted Russian export facilities, resulting in the shutdown of at least 20% of the country's total export capacity. While this figure is lower than the peak level of 40% recorded in March, it still significantly impacts oil production, making Russia the third-largest oil-producing country in the world, following the United States and Saudi Arabia.

The main Russian port of Ust-Luga, located on the Baltic Sea coast, was forced to suspend oil exports just a week ago due to drone strikes and the outbreak of fires. Sources indicate that the drone attacks have affected not only export infrastructure but also domestic oil refineries (refineries), leading to congestion in the Russian pipeline system. As a result, storage facilities are filling up, and some oil fields will have to reduce production to avoid further overflow.

Russia has benefited from rising oil prices that occurred following the onset of American-Israeli attacks on Iran in late February. However, despite this benefit, cuts in energy production will harm the economy, as oil and natural gas account for about a quarter of state budget revenues.

Even before the attacks on Baltic ports, Russia's export capabilities were already limited, as the Druzhba pipeline, which supplies oil to Hungary and Slovakia, has been out of operation since January. More than 80% of Russian oil is transported by the state monopoly Transneft, which, according to sources, has informed exporters that it cannot fulfill oil shipments according to the original export schedule due to recent damage at the Ust-Luga port.

One source also noted that Transneft has informed producers of its inability to accept all the oil scheduled for export through Ust-Luga into its system. According to OPEC, in February, oil production in Russia was 9.184 million barrels per day; however, sources could not specify how much production might be cut.

Export problems at Ust-Luga are affecting not only Russian oil but also Kazakhstan, which ships between 200,000 and 400,000 tons of KEBCO oil through this port each month. Seasonal maintenance at oil refineries in Russia is also exacerbating the problem of excess oil in the Transneft system, as reduced processing volumes lead to increased surpluses.

Typically, in March and April, when seasonal repairs are carried out at refineries in Russia, the country increases crude oil exports. However, this time, the shutdown of refineries may lead to an accumulation of even more oil at storage facilities. There are currently no official data on the volumes of available storage, but one source noted that the reserves would last for several weeks, but not for months.

As previously reported by Ukrinform, the war in Iran is bringing additional revenues to Russia not only through rising oil prices but also due to the increased costs of other raw material resources such as gas, grain, aluminum, and fertilizers.

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