JPMorgan has issued a warning that Ukraine's sustained drone attacks on Russian refineries are transforming a regional conflict into a systemic supply crisis. Russia's diesel exports have plummeted by two-thirds from their peak, creating a global shortfall in daily refinery processing of up to 8.2 million barrels. This tightness in refined product markets could persist until 2027.
The focal point of the global crude oil market is undergoing a fundamental shift. While supply disruptions in the Strait of Hormuz remain a concern, JPMorgan argues the variable now decisively shaping the global energy landscape is refinery capacity, with Russia at the center of this dynamic.
Natasha Kaneva, Head of Global Commodities Research at JPMorgan, notes that while recent US-Iran tensions have further reduced crude transit through Hormuz, the market has adapted to viewing crude supply as a fluid issue over recent months—barrels can disappear but can also return relatively quickly. The refining sector is a different story entirely. Global refinery throughput has dropped by 8.2 million barrels per day from the start of the year, with Russia accounting for roughly 20% of that decline, making it one of the largest drags on global refining activity.
The direct market impact is already evident: Russian diesel and fuel oil exports have fallen by approximately two-thirds from their peak, tightening the already constrained global distillates market and keeping refinery crack spreads at exceptionally high levels. JPMorgan assesses that even if the Strait of Hormuz stabilizes, the tightness in product markets could last until 2027.
Three Major Refining Uncertainties, with Russia Overlooked
Kaneva points out that current uncertainties constraining the global refining system stem from two main directions.
The first is the Middle East. JPMorgan has tracked over 30 attacks on refineries and processing facilities in the region, but the actual extent of physical damage remains difficult to assess. The region possesses 11.7 million barrels per day of refining capacity, and it is unclear what proportion can be restarted quickly. JPMorgan's base case assumes only 250,000 barrels per day of capacity will remain offline through year-end, but the bank acknowledges low confidence in this estimate.
The second, and most underestimated by the market, is Russia. Russia's refining system has endured intensive drone strikes from Ukraine over the past three months, damaging not only refineries and storage facilities but also secondary conversion units like hydrocrackers, catalytic crackers, and reformers that determine product yields. In June, Russian refinery throughput fell to 3.8 million barrels per day, down 1.5 million barrels from the start of the year.
Domestic Fuel Shortages in Russia Escalate Beyond Consumers
The fuel situation within Russia has evolved from a consumer issue into a broader operational crisis.
Shortages have spread to regions with local refineries, rooted in supply being prioritized for Moscow. The strategic logic of Ukraine's targeting is clear: attacks on refineries supplying the capital rose to 39% in 2026, up from 22% in 2025.
Coinciding with the peak of Russia's "dacha season," where millions drive to countryside vacation homes, seasonal gasoline demand hits its annual high, making fuel shortages significantly more visible. Some areas have seen queues for fuel lasting days, with gas stations imposing sales limits and stations owned by major retailers experiencing outages. Retail fuel prices have surged sharply, with reports of some independent stations charging over 50% above normal levels. The impact of the shortage is spreading from private car owners to agriculture, public transport, utilities, logistics, and small-to-medium enterprises. As the agricultural harvest begins in southern regions in August, diesel demand will enter its annual peak, further intensifying supply pressure.
The Russian government's countermeasures have focused on maintaining near-term fuel availability, including importing gasoline from Belarus and India, approving tax amendments to incentivize higher blending ratios, allowing refineries to produce lower-specification Euro 3 gasoline instead of Euro 5, and tightening export controls on gasoline, jet fuel, and diesel. These measures essentially manage the fuel shortage at the margins rather than repairing the refining capacity itself.
Russia's Refining Crisis Spills Over to Global Markets
The damage to Russia's refining system has had a profound impact on the global supply structure. Unable to process it domestically, Russia has diverted more crude to the export market, with crude export volumes nearing record highs and exacerbating the global crude surplus. Simultaneously, its refined product exports have fallen sharply.
Russia holds a pivotal position in global product trade: it is the world's second-largest diesel exporter, supplying about 12% of global diesel exports (approximately 800,000 barrels per day), and also the world's largest fuel oil exporter, accounting for roughly 16% of global fuel oil exports (about 900,000 barrels per day). Consequently, the disruption to Russia's refining system has a far greater impact on product markets than its direct effect on crude markets.
Prior to the escalation of Ukrainian drone attacks, Russian refineries typically processed about 5.3 million barrels of crude per day, producing approximately 2 million barrels of diesel, 1 million barrels of gasoline, 900,000 barrels of fuel oil, 300,000 barrels of jet fuel, and 1.1 million barrels of other products. Domestic consumption absorbed most of the gasoline and jet fuel, while about half of the diesel and nearly all the fuel oil was exported to global markets. This normal operating level serves as the baseline for measuring the current supply gap.
JPMorgan's Outlook: Gradual Recovery with Downside Risks
JPMorgan's core assessment is that the disruption to Russian refining capacity has shifted from a sporadic disturbance to a systemic issue. Since late March, Ukraine's campaign has evolved from sporadic harassment into a sustained strategic operation aimed at systematically degrading Russia's refining and fuel distribution system. More critically, repairing such complex secondary units is far more difficult than fixing atmospheric distillation units, and downtime could extend from weeks to several quarters.
JPMorgan's base case projects Russian refinery throughput will gradually recover from the current 3.6 million barrels per day to around 4.5 million by early 2027, averaging 4.7 million for the full year 2027. This forecast assumes the drone campaign may ease after Russia's September elections.
Upside risks exist: if Ukrainian drone attacks were to stop abruptly, there is potential for rapid repair of most damaged units, with throughput rebounding significantly within one to two months. Downside risks are equally significant—Ukraine has amply demonstrated its capability and willingness to conduct large-scale precision strikes deep within Russia. The key unknown for the market is how long this offensive can be sustained.
On the upstream side, constrained by downstream bottlenecks, Russian crude oil production has fallen to 8.7 million barrels per day, down about 600,000 barrels from the start of the year and nearing the practical limits of export infrastructure. Capital expenditure among Russian oil companies has clearly shifted—overall spending continues to grow, but upstream investment is largely flat, with funds being prioritized for refinery repairs, equipment replacement, and domestic fuel security. JPMorgan expects Russian crude output to recover slowly, reaching about 9 million barrels per day by year-end and stabilizing around 9.2 million in 2027.
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