The global crude oil market's focus is undergoing a fundamental shift. While supply disruptions in the Strait of Hormuz certainly capture market attention, the variable now decisively shaping the global energy landscape is shifting to refining capacity—and at the heart of this dynamic lies Russia.
JPMorgan commodities research head Natasha Kaneva points out that while the latest round of US-Iran tensions has again suppressed crude transit volumes through Hormuz, the market has gradually adapted to viewing crude supply as a dynamic issue after months of volatility—barrels can disappear but can also return relatively swiftly. The refining sector is far different. Current global refinery throughput has plunged by 8.2 million barrels per day compared to the start of the year, with Russia accounting for roughly 20% of that decline, making it one of the largest variables dragging down global refining activity.
The direct market impact of this situation is already evident: Russian diesel and fuel oil exports have plummeted by about two-thirds from their peak, further tightening an already supply-constrained global distillates market and keeping refinery crack spreads at unusually high levels. JPMorgan assesses that even if the situation in the Strait of Hormuz stabilizes, tightness in the refined products market could persist until 2027.
Three Refining Uncertainties, Russia the Most Overlooked
Kaneva notes that uncertainties currently 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 holds 11.7 million barrels per day of refining capacity, and what proportion can be restarted quickly is still uncertain. The bank's base case assumes only 250,000 barrels per day of capacity remains offline through year-end, but it concedes low confidence in this estimate.
The second, and most underestimated by the market, is Russia. Russia's refining system has endured sustained, intensive strikes by Ukrainian drones over the past three months, damaging not only refineries and storage but also secondary conversion units like hydrocrackers, catalytic crackers, and reformers that determine product yields. Russia's refinery throughput fell to 3.8 million barrels per day in June, down 1.5 million barrels from the start of the year.
Russia's Domestic Fuel Shortage Spreads Beyond Consumer Level
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 suburban holiday homes, seasonal gasoline demand is at its annual high, making fuel shortages significantly more visible. Some areas have seen queues lasting days, with gas stations rationing sales and stations operated by major retailers experiencing outages. Retail fuel prices have surged sharply, with some independent stations reportedly charging over 50% above normal levels. The shortage's impact is spreading from private car owners to agriculture, public transport, utilities, logistics, and small-to-medium enterprises. Diesel demand will enter its annual peak starting with the southern agricultural harvest in August, further intensifying supply pressure.
The Russian government's response focuses 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-spec 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 margin rather than repairing refining capacity itself.
Russia's Refining Troubles Spill Over into Global Markets
Damage to Russia's refining system is having a profound impact on the global supply structure. Unable to process it domestically, Russia is diverting more crude to the export market, with crude export volumes nearing record highs, exacerbating the global crude surplus; meanwhile, refined product exports have fallen sharply.
Russia holds a pivotal position in global refined product trade: it is the world's second-largest diesel exporter, supplying about 12% of global diesel exports (approximately 800,000 barrels per day); it is also the world's largest fuel oil exporter, accounting for about 16% of global fuel oil exports (roughly 900,000 barrels per day). Consequently, disruptions to Russia's refining system impact the products market far more directly than the crude market.
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 gasoline and jet fuel, while about half of diesel and nearly all fuel oil was exported to global markets. This normal operating level serves as the benchmark for measuring the current supply shortfall.
JPMorgan: Gradual Recovery, Risks Tilted to the Downside
JPMorgan's core assessment is that disruptions to Russian refining capacity have shifted from sporadic disturbances to a systemic problem. Since late March, Ukrainian strikes have evolved from sporadic harassment into a sustained strategic campaign aimed at systematically degrading Russia's refining and fuel distribution system. More critically, repairing such units is far more complex than atmospheric distillation units, with downtime potentially stretching from weeks to several quarters.
JPMorgan's base case expects Russian refinery throughput to gradually recover from the current 3.6 million barrels per day to about 4.5 million by early 2027, averaging 4.7 million for the full year 2027. This forecast is based on the assumption that drone attacks will subside somewhat after Russia's September elections.
The upside risk is that if Ukrainian drone attacks cease abruptly, most damaged units could be repaired relatively quickly, and refinery throughput could rebound significantly within one to two months. Downside risks are equally significant—Ukraine has amply demonstrated both the capability and willingness to conduct large-scale, precise strikes deep within Russia. The key unknown for the market is how long this campaign can be sustained.
At the upstream level, 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, nearing the practical limit of export infrastructure capacity. The capital expenditure structure of Russian oil companies has shifted notably—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.
Comments