ISW: Russia Hasn't Seen This Since The Early 1990s

• 27.08.2025, 22:07

The AFU strikes have led to gasoline shortages across Russia.

Recent Ukrainian strikes on Russian refineries have contributed to gasoline shortages across Russia - which will likely increase inflation and cause further macroeconomic instability in Russia, suggests the Institute for the Study of War (ISW). And a likely reduction in Russian oil exports to India due to U.S. tariffs could significantly limit Russia's ability to finance its war machine.

In their new report, ISW experts draw attention to a Reuters report that Russia has lost at least 17% of its refining capacity due to recent Ukrainian strikes on 10 oil refineries. That's about 1.1 million barrels per day, which has triggered gasoline shortages (particularly A-95 premium) in parts of southern and far eastern Russia, as well as in the Russian-occupied territories of Ukraine.

According to Reuters, Russia increased its crude export plan by 200,000 barrels per day in August as Ukrainian drone strikes disrupted refinery operations, while Russian crude remained available for export. This revision of export plans may boost Russia's oil revenues in the short term, but will likely have a negative impact on the domestic economy, ISW analysts predicted.

The Wall Street Journal reported on August 25 that several regions of Russia and occupied Crimea have imposed rationing at gas stations due to damage to Russian refineries caused by Ukrainian drone strikes. The head of the Kuril municipal district Konstantin Istomin said on August 25 that the sale of A-92 gasoline to residents of the Kuril Islands (Russia's Sakhalin Oblast) had been suspended. ISW recalls that Russia has been trying to meet domestic demand for gasoline even before the recent Ukrainian strikes and has imposed periodic bans on gasoline exports since 2022, most recently banning exports in late July and August.

The ISW emphasizes that it was Ukraine's recent strikes on Russian refineries that exacerbated Russia's gasoline shortage. This has led to a sharp rise in gasoline prices across Russia and in occupied areas of Ukraine, which is likely to increase consumer spending and business spending across all industries. These increases will raise inflation expectations and push overall inflation upward, increasing both direct and indirect costs to the Russian economy, the Institute for the Study of War predicts. It recalls that Russia's central bank cut its interest rate on July 25, 2025 - likely a pre-emptive response to a temporary drop in the seasonally adjusted annual inflation rate in June 2025. However, higher gasoline prices and lower interest rates, combined with a long-term increase in payments to Russian military personnel, as well as an increase in the labor force attracted to work in the defense-industrial complex, are likely to lead to a sharp rise in inflation, weaken the purchasing power of Russians, devalue the ruble in the medium and long term, and create further macroeconomic instability in Russia, the ISW forecasts.

The Institute's analysts separately considered the consequences that the new tariffs will have on the Russian economy. These tariffs have come into effect from today, August 27. At the same time, India is one of the largest importers of Russian oil, and now imports about 37% of its oil from Russia - up from about 2% before Russia's full-scale invasion of Ukraine in February 2022. Bloomberg reported on Aug. 26 that Indian refiners plan to cut purchases of Russian crude in response to higher U.S. tariffs, although there were no reports of plans to stop buying from Russia entirely. Informed sources told Bloomberg that both public and private refiners in India are likely to cut purchases to 1.4-1.6 million barrels per day from a monthly average of 1.8 million barrels per day through 2025.

The reduction in purchases of Russian crude by Indian refiners over an extended period of time is likely to significantly limit Russia's ability to finance its war machine, experts at the Institute for the Study of War expect. ISW continues to assess that secondary sanctions are likely to further impact the Russian economy by undermining Russian oil revenues, which are essential to the Kremlin's funding of its war against Ukraine.