Russian fuel crisis hits supply chains, complicates rate cuts
A sustained campaign of Ukrainian drone strikes on Russian refineries is driving record freight costs and inflation, forcing the central bank to delay rate cuts ahead of a critical harvest season.
Ukraine’s drone campaign against Russian energy infrastructure has triggered a widespread fuel shortage that is pushing up freight rates, squeezing consumer spending and threatening the summer harvest.
More than 50 attacks have hit Russia’s 30 major refineries since March, taking roughly a quarter of the country’s refining capacity offline. Gasoline output has fallen at least 13.5%, according to independent energy analyst Sergey Vakulenko, forcing Moscow to temporarily ban diesel exports and import 60,000 tonnes of petrol from India.
The supply shock is transmitting directly into logistics costs. The full truckload freight index surged 17.5% over six weeks to a record 2,086 points in July, putting year-on-year freight costs up almost 29%. With fuel accounting for roughly 30% of long-haul costs, some major city routes have seen rate increases exceed 50%, while rationing limits force inefficient detours.
Higher transport costs are filtering through to retail prices while simultaneously depressing demand. New passenger car sales dropped 16.2% week-on-week in mid-July to 25,900 vehicles. The Levada Centre’s Consumer Sentiment Index fell to 94 points in June, dropping below the optimism threshold for the first time since October 2022, as shopping centres forecast a 3-7% drop in spontaneous visitor traffic.
Agricultural supply chain at risk
The inflationary pressure arrives at a precarious time for Russian agriculture. Farmers in southern and central regions are struggling to secure diesel for harvesting machinery, and disruptions to grain exports through the Sea of Azov are crushing margins. Industry estimates suggest wheat exports could fall by 5mn to 10mn tonnes if maritime routes are not restored.
The crisis presents an acute dilemma for the Central Bank of Russia. Petrol prices have jumped 13.9% and diesel 14.7% since January, far outpacing the overall 4.5% rise in consumer prices. Governor Elvira Nabiullina noted that “the inflation rate in June will be affected by the spike in fuel prices that has occurred,” warning it “might take some time for supply to rebound.”
The CBR cut its key rate by just 25 basis points to 14.25% in June and is widely expected to hold rates at its July 24 meeting. This comes despite President Vladimir Putin publicly calling for accelerated monetary easing, underscoring the tension between political demands for growth and the inflationary realities of a degraded fuel supply chain. Deputy prime minister Alexander Novak publicly acknowledged the root cause, stating: “The shortage is due to obvious reasons, because our oil refineries are partially out of order for repairs due to [Ukrainian drone] arrivals.”
