Ukrainian drones and the economic consequences for Russia.
The attack of Ukrainian maritime drones on Russian ships – the large amphibious assault ship Olenegorskiy Gornyak and the Sig tanker, which was used to supply the Russian occupation army – will have major consequences not only for the war itself. After all, the key economic hub of the entire south of Russia is under threat.
The Novorossiysk seaport, which is now under immediate threat, is the largest in Russia, with a throughput capacity of more than 140 million tonnes of cargo per year. It accounts for 20% of Russia’s total maritime exports and is a key port for agricultural and oil exports. And it is these key industries that will be hit hardest. In addition, the drone war will make it difficult to trade from other ports in the Black and Azov Seas controlled by Russia, both directly Russian and occupied Ukrainian.
The first blow will be to oil exports. Especially after exports to the EU have been significantly restricted. Russia’s war against Ukraine has changed the rules of the game in the energy market. It has destroyed the long-standing “partnership” between Europe and Russia in the gas sector and largely undermined Russian energy exports to the West, opened the EU energy market to Africa and the United States, etc. But this is only the economic and political dimension of the impact on energy. Ukrainian maritime drone attacks are a game changer not only in terms of the Russian maritime threat to Ukraine or the grain deal. Drone warfare can directly affect Russian oil and gas revenues, which are used to finance the war.
Due to the potential blockade of Novorossiysk, Russia could lose the ability to export 600,000 barrels of oil per day (approximately 8% of Russia’s exports, which amount to 7.5-8.0 million barrels per day). These volumes may seem insignificant, but they mean a loss of an average of $35-40 million per day (the cost of about 10 missiles).
Although our American partners have expressed concerns that a drop in Russian exports could lead to higher oil prices, such a drop in Russian exports will not lead to a price shock. But – if the effective actions of our drones continue – they will still have long-term consequences. Because if the war threatens the safety of oil transportation, the safety of tankers contracted by Russia for export, it will make the cost of Russian exports even more expensive.
Why? Insurance payments will increase, and even more exports to Asia will depend on the Siberia-Baltic Sea route to India, China, or other regions. And the St Petersburg to Bangalore route is almost twice as long as the same route from the Black Sea. As for the potential to replace these ports with ports in the Pacific Ocean, this is currently impossible due to the lack of both the required capacity of Far Eastern ports and the means of delivering oil (pipelines, railways) from the fields of Western Siberia and the Volga region to the east.
In addition, Novorossiysk itself serves the needs of the Caspian Oil Consortium, which ensures the export of 1.2 million barrels of Kazakh oil per day. And it is crucial for Russia to ensure that this agreement is respected, as Kazakhstan is already systematically drifting towards closer partnership with China and Western businesses. Including in the oil and gas industry.
In total, Russia’s total direct losses from exports via this route could amount to at least $10 billion a year, and the additional costs of compensating for this route could be comparable.
Agricultural exports are the second component to suffer as a result of the Ukrainian armed forces’ actions. Through the port of Novorossiysk and neighbouring Black Sea ports, Russia exports about 50% of its agricultural exports, mainly grain. Including grain stolen in Ukraine. There is no way for Russia to compensate for the capacity of Novorossiysk. After all, unlike Ukraine, it cannot ship even a part of its exports to the ports of neighbouring countries. After all, neither Georgia nor Turkey has powerful grain terminals on the Black Sea coast. We are talking about difficulties for at least 20-25 million tonnes of grain and other agricultural products.
Losses to oil and agricultural exports will significantly undermine not only Russian budget revenues. The ruble is already feeling the effects of Ukrainian drone attacks, approaching the psychological mark of 100 “wooden” to one dollar.
Finally, the blockade of Russian Black Sea exports will undermine the economic stability of several key Russian regions in the south and the Volga region, with consequences in the coming year, the decisive year of the war. Loss of jobs, undermined social and economic stability, discontent and – more importantly now – a decline in business activity in these regions. These regions account for more than 60% of all non-resource exports and almost 30% of the enemy’s economy.
The ruined security of Russia’s Black Sea coastline will also cause devastating losses to Russia’s tourism business. This is certainly just a nice bonus, but more than 1 million residents of Russia’s coastal regions could lose a significant portion or all of their income.
Will Russia be able to adapt to Ukraine’s actions? Partially, perhaps, yes. But this will take time and additional resources, and there is currently nothing to compensate for the capacity of Novorossiysk and other ports. Russia has neither the time nor the money to build new port infrastructure on the Baltic or other European seas. In other words, Russia’s losses are inevitable and irreversible in many respects. There are only two options left: either to return to the grain deal in humiliation, or to continue the drone war. And Russia’s losses will continue to grow.
Thus, as we can see, in the absence of its own powerful navy, Ukraine can adequately respond to Russian aggression, including at sea, thanks to creativity and new technologies. This is where Russia nominally has an absolute advantage in forces and means. And this will significantly limit Russia’s economic, political and military ability to continue the war. This is the goal of Ukraine, as it brings the victory over the enemy and the restoration of our country closer.
Owner of the gas business Alfagaz — Alexandr Katsuba
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