Intel Brief: Russia's Oil Windfall Cannot Reverse Severe Problems at Home
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- 5 min read
Date: 24/03/2026
Throughout March 2026, Russia has capitalised on a global energy supply shock to generate substantial emergency revenue.
In the first fifteen days of March, the Kremlin extracted €7.7 billion from fossil fuel exports, averaging €513 million per day, according to the Centre for Research on Energy and Clean Air. This was up from a €472 million daily average in February.
The financial surge was made possible due to a confluence of events: the near-complete closure of the Strait of Hormuz by Iran and the subsequent emergency suspension of US sanctions on Russian oil.
The resulting capital accumulation provides immediate liquidity to a Russian state sustaining significant wartime expenditure and battling constant drone attacks by Ukraine on its oil and gas refineries and pipelines.
The Supply Shock
The Strait of Hormuz historically facilitates the transit of roughly one-fifth of global daily oil consumption. Its closure instantly removed a significant volume from global supply, creating an acute procurement crisis, especially for Asian economies dependent on Middle Eastern exports.
Large-scale refineries cannot pause operations when supply chains are severed. Facing immediate operational risk, international buyers moved to secure alternative physical volume under significant time pressure.
Despite Russia’s international pariah status due to the Ukraine invasion, the cold reality of economic necessity made it the perfect alternative supplier as one of the largest oil producers in the world.
Additionally, the decision by President Donald Trump to lift sanctions on Russian crude for a month should not be seen as a diplomatic concession, but as a needed market stabilisation measure. Before the waiver, Western price caps blocked the provision of maritime insurance and shipping services to vessels carrying Russian crude above a set price ceiling. Lifting it allows Moscow's tanker fleet to serve as an immediate substitute for disrupted Middle Eastern supply.
India moved fastest. With its refining capacity far exceeding domestic crude production, Indian buyers had the most urgent need for alternative baseload. Its imports of Russian crude surged 50 percent in the first half of March compared to February.
This is a systemic shift in Russia’s short and middle-term financial outlook. Russian oil arriving at Indian ports moved from trading below Brent to commanding an estimated $5 premium over it. Because Russian extraction costs are relatively fixed, that price shift translates directly into margin. Financial Times market modelling in mid-March estimated Russia would make a surplus of $110 million to $150 million per day.
The longer the Strait of Hormuz remains closed, the more this will increase.
A chart comparing the price of Brent (blue) and Russia Urals crude (red). Source: Sky News.
A Fiscal Tourniquet
The capital generated by the Hormuz supply shock buys Moscow time, munitions, and short-term budgetary relief. But it does not address the structural condition of a wartime economy dependent on degrading and actively targeted hydrocarbon infrastructure.
The €7.7 billion influx in early March, and the billions that follow, are a great help. But unless the war drags on for far longer, it will not be enough for Russia to make a sustainable financial recovery.
Before the March supply shock, the Kremlin was drawing down sovereign reserves to cover wartime expenditure. The National Wealth Fund held approximately $130 billion in liquid assets at the start of the war. That buffer had fallen to an estimated $50 billion by early 2025.
The estimated $150 million daily surplus generated by the Hormuz premium directly offsets. In an economy utterly dominated by wartime expenditure, this can cover soldier signing bonuses, munitions procurement, and near-term budget gaps.
But the Russian economy’s dependency on oil revenue has left it in stagflation. The state has shifted to a war-economy model, redirecting civilian industrial capacity toward the defense sector. The civilian economy contracted for three consecutive quarters through late 2025. Foreign direct investment has cratered.
To finance a 2026 federal budget deficit projected at 3.8 trillion rubles ($49 billion), the Kremlin has raised the corporate profit tax to 25% and the VAT as high as 22%, both of which are accelerating domestic inflation.
When the energy market stabilizes and the Hormuz premium disappears, Russia will revert to its previous position: heavily sanctioned, structurally constrained, and without internal growth mechanisms to compensate.
Why Ukraine Targets the Infrastructure
Ukraine has exploited this weakness. Kyiv has systematically targeted Russian refineries, oil depots, and pipeline networks on the calculation that degrading the physical supply chain is the most effective way to constrain Russian finances.
The scale of the campaign is significant. Across 2024, 2025, and into early 2026, Ukraine has executed around 200 confirmed strikes on Russian energy infrastructure, hitting almost half of Russia's 38 major refineries, including the Rosneft Ryazan plant, the Volgograd refinery, and the Slavneft-YANOS facility in Yaroslavl.
On March 23, Ukrainian drones struck the Russian oil port of Primorsk, on the Baltic Sea.
At various points, these strikes have taken up to 17% of Russia's total refining capacity offline, prompting emergency bans on domestic gasoline exports to protect military and agricultural fuel supply.
A map of Russian refineries. Red, orange and yellow icons have been struck or targeted by Ukraine. Source: Caspian Policy Center, March 2026.
The Expanding Strike Radius
Ukrainian long-range drone development has shifted the geographic scope of the conflict. Its ordnance now has a range exceeding 2,000 kilometers. Importantly, these drones are not constrained geographically, as is the case with several missile systems. This has been confirmed through strikes on the Lukoil-Ukhtaneftepererabotka refinery in the Komi Republic in February 2026 and the Antipinsky refinery in the Tyumen region of Siberia. That range places the majority of Russia's industrial and hydrocarbon infrastructure, including facilities in the Urals and western Siberia, within operational reach.
This creates a difficult resource allocation problem for the Russian Ministry of Defense.
Air defense assets must be distributed to defend the frontline, industrial bases, energy infrastructure, military bases, airfields, and major cities. There are simply too few air defense assets to provide sufficient coverage among these locations, meaning some are left without any significant cover, leading to predictable outcomes once targeted.
Frontline Attrition
The revenue surplus also cannot reverse current battlefield momentum.
Throughout 2025, Russian forces were unable to sustain combined-arms offensives, advancing at a glacial pace while incurring significant casualties. In early 2026, the Ukrainians also conducted a series of localized counterattacks which were accelerated by Russia’s sudden loss of Starlink, as SpaceX, Starlink’s owner, moved to blacklist unverified systems, which the Russians depended on due to sanctions.
The reallocation of Russian air defense assets away from the contact line has given Ukrainian forces greater operational freedom. That has enabled Ukrainian infantry to degrade fortified Russian defensive positions and apply pressure to critical logistical nodes in the Donbas and Zaporizhzhia sectors.
Domestic Friction
The situation in Russia is worsened by escalating controversy at home. Since early March, the government has initiated severe internet throttling and localized communications blackouts across major cities like Moscow and St. Petersburg.
The recent targeted bans on Telegram and other widely used apps and social media reflect a profound state insecurity regarding domestic stability and may be the precursor to a more permanent type of information control.
This has led to surprising protests, with even a traditionally pro-state newspaper publishing direct criticism of the communication blackouts.
Conclusion
In the current landscape, Dyami views the fiscal windfall as a temporary bonus rather than an early sign of Russian economic stabilisation.
The Hormuz-driven fiscal windfall is real, but its strategic value is constrained by the same conditions that have made Russia so vulnerable.
Moscow can use the surplus to cover immediate wartime expenditure, soldier bonuses, and near-term budget shortfalls. It cannot use it to reconstitute degraded refining infrastructure, replace sanctioned industrial components, or reverse its profound recession.
The emergency US sanctions waiver applies strictly to crude oil exports, not to the import of high-technology components needed to repair and maintain oil refineries.
Worse, the extra injection of cash may worsen inflation. Injecting surplus petrodollars into a war economy operating at full industrial capacity, with a severe labour shortage and no meaningful civilian output growth, will only accelerate price instability.
