Ukraine Drone Attacks Disrupt Russian Fuel Production and Spike Global Gas Prices
Last week, Ukraine launched suicide drone attacks on Russia's largest oil refinery, forcing it to halt operations. This attack is part of a broader Ukrainian campaign targeting Russia's oil and fuel industry, which has led to a 71% drop in Russian fuel exports over the past year and significant production slowdowns domestically. As a result, Russia now produces only about 65% of its fuel demand, causing widespread shortages and long queues at gas stations across the country, with prices soaring to as high as 17.6 shekels per liter in some areas.
The fuel shortage is especially severe in Crimea, where Ukrainian strikes have further disrupted supply. In response, Russia has imported fuel from neighboring Belarus and completely stopped diesel exports. Given that Russia accounts for roughly 5.2% of global fuel trade, valued at approximately $46 billion in 2024, the export halt has global repercussions, pushing fuel prices higher worldwide.
Fuel prices in the Mediterranean region, including Israel, have risen since late June, and Israeli consumers are expected to face higher gasoline prices in August. Currently, the regulated gasoline price in Israel is 7.48 shekels per liter for July, with 2.08 shekels attributed to the fuel cost itself. The recent global price surge, combined with a slightly stronger dollar and VAT, is likely to increase prices further.
Despite the challenges for consumers, international refineries, including Israel's Bazan and Paz, are benefiting from the situation. The refining margin, the difference between crude oil prices and refined fuel prices, has surged dramatically. For example, the diesel refining margin rose from $43 per barrel on June 22 to about $70 recently, while the gasoline margin hit a four-year high of $47 per barrel. This has boosted refinery profits and stock prices, with Bazan shares up 16% and Paz shares up 24% in the past month.
Economist Chen Herzog from BDO explains that the combined impact of attacks on Russian and Gulf refineries has created a global fuel shortage, especially affecting countries without local refining capacity. The ongoing conflict and sanctions, dubbed "kinetic sanctions," continue to disrupt Russia's energy sector, with significant implications for global fuel markets and local economies dependent on fuel prices.
The situation remains fluid, and any changes in global fuel prices or currency exchange rates could alter the outlook for consumers and producers alike in the coming months.
