Energy War Escalates as Russia and Ukraine Attack Each Other's Assets

As winter slows down the pace of combat on the battlefield, Moscow and Kyiv are engaging in a fierce parallel war on each other's energy assets. This campaign, which has been ongoing for years, could potentially become a decisive factor in breaking the stalemate in the conflict. Russia has targeted Ukraine's electricity and gas infrastructure, aiming to cripple its ability to function and sap its people's will to endure the war. Ukraine, on the other hand, has responded with "long-range sanctions" in the form of drone strikes that have damaged several Russian oil refineries and infrastructure.

Key Takeaways:

• Russia's oil industry is the lifeblood of the Kremlin's war machine, generating hundreds of millions of dollars daily.
• The US has imposed sweeping new sanctions on Russia's oil industry, targeting its two biggest oil companies, Lukoil and Rosneft.
• Analysts estimate that Rosneft and Lukoil account for roughly half of Russia's crude oil production, and blacklisting them could prompt critical buyers to diversify their sources.
• Russia has repeatedly shown an ability to exploit loopholes and evade restrictions, but the new sanctions could still have a significant impact on its economy and war efforts.
• Ukraine has also targeted Russia's military-industrial complex to curb Moscow's ability to conduct attacks, using long-range, Western-made Storm Shadow missiles to strike a plant that produced explosives and rocket fuel.
• The Ukrainian military has used American satellite information to launch these attacks, suggesting a level of cooperation between the two countries.
• Kyiv is pushing to get American-made Tomahawk missiles, which could extend its ability to strike deep inside Russia, but Mr. Trump has so far not approved the request.
• Mr. Putin has issued increasingly vehement warnings against delivering such missiles to Ukraine, highlighting the growing tensions between the two.
• Russia's objective is to plunge the population into cold and darkness, undermining morale and disrupting economic activity.
• Ukraine has begun rolling out emergency blackouts across the country to cope with electricity shortages caused by attacks on power plants and substations.
• Recent attacks on gas facilities have knocked out roughly 60% of Ukraine's gas production capacity, with several cities delaying turning on centralized heating in residential buildings due to gas shortages.
• Fears are mounting that many households may go without sufficient heat this winter, in a country where subzero temperatures can linger for weeks.
• Factories face the risk of closing due to power shortages and rising electricity costs, which could drive more Ukrainians to emigrate and further weaken the economy.
• Ukraine is racing to import as much gas as possible before cold temperatures set in, but it lacks the money and it remains unclear whether its European partners will finance all the gas imports.

Statistics:

• Ukraine has destroyed or damaged about 20% of Russia's refining capacity through its attacks on refineries.
• The new US sanctions on Russia's oil industry target its two biggest oil companies, Lukoil and Rosneft, which account for roughly half of Russia's crude oil production.
• Ukraine aims to bring in roughly four billion cubic meters of gas at a cost of around $2 billion, but it lacks the money and it remains unclear whether its European partners will finance all the gas imports.
• A European plan to use stocks of gas to cover its financial needs for the next two years could alter both Kyiv's and Moscow's calculations, but concerns over legal and financial repercussions have so far prevented European countries from adopting the plan.

Sources:

• Lukoil
• Rosneft
• R.Politik
• The New York Times
• Reuters
• Deutsche Welle
• European official (anonymous)