Ukraine’s Drone War Is Crippling Russia’s Oil Lifeline

Key Points and Summary – In year four of Russia’s war, Ukraine has flipped the battlefield by striking Russia’s oil network with drones and missiles, idling refineries and triggering rationing, black markets, and fuel station closures.

-Analysts estimate billions in lost refining margins as Moscow raises taxes, trims its 2026 defense budget, and battles inflation and soaring mortgage delinquencies—classic stagflation.

President Donald J. Trump participates in a bilateral meeting with the President of the Russian Federation Vladimir Putin during the G20 Japan Summit Friday, June 28, 2019, in Osaka, Japan. (Official White House Photo by Shealah Craighead)

-Washington is deepening support with targeting intelligence and potential Tomahawks while Kyiv scales domestic long-range weapons.

-These pressures expose Kremlin brittleness: mounting casualties, economic decay, and elite frustration raise risks of shocks, a coup, or abrupt leadership change.

-Inside Russia, anger grows.

Russia’s Ukriane War Takes a Nasty Turn for Moscow 

It’s now year four of Russia’s war in Ukraine. What was supposed to be a “special military operation” lasting a few weeks has turned into Ukraine’s own special oil operation – one that is steadily eroding Russia’s ability to finance its war. That Donald Trump has gone from telling Volodymyr Zelensky he “had no cards” to now saying Ukraine can take back all its territory suggests that Washington is seeing damning intelligence about the state of Russia. More importantly, it shows how Ukraine has only grown stronger technologically.

Vladimir Putin has long dreamed of restoring the Russian Empire’s greatness and the Soviet Union’s world-power status. What Putin forgets to say is that both empires collapsed and, as his critics insist, that the Russian Federation increasingly resembles the USSR just before its demise. Ironically, Ukrainian drones have reinforced that comparison by forcing Russians back to fuel lines, illegal markets, coupons, and rations, as if it were 1991 all over again.

Many gas stations across Russia are closing or operating at reduced capacity as the government imposes price caps that make margins untenable. Fuel is increasingly being diverted to black markets, where prices in some areas reportedly reach the equivalent of $9 per gallon. “Ukrainian strikes highlight vulnerabilities in Russia’s economy and military, undermining propaganda claims of success and fueling public dissatisfaction,” said Serhii Kuzan, chairman of the Ukrainian Security and Cooperation Center.

The reality is that Moscow is bleeding on the battlefield, with over a million casualties and little to show for it, while Ukraine’s expanding long-range drone fleet has knocked nearly 40% of Russia’s oil refineries offline. According to an analysis by BeefeaterFella, with refined fuels yielding far higher margins than crude, Russia could be losing $3–6 billion annually in revenue, while shortages, rationing, and black markets spread at home.

Since January, 21 of Russia’s 38 major refineries have been struck, with successful Ukrainian attacks already 48% higher than in all of 2024, according to the BBC. The cascading effects are being felt far from the battlefield. Owners of small petrol stations in Siberia told Russian media they were forced to close due to supply shortfalls, with one manager in Novosibirsk comparing the crisis to the hyperinflation of post-Soviet Russia.

Buk-M2E Air Defense from Russia. Image Credit: Creative Commons.

Russia’s war machine is also running into hard limits. For the first time since the full-scale invasion, Moscow’s military budget is projected to shrink in 2026, falling from $163 billion to roughly $156 billion once inflation is factored in. The Kremlin is raising taxes on ordinary Russians and slashing other expenditures just to keep the war going, even as oil and gas revenues decline. Far from signaling strength, this tightening of the purse strings shows that Putin is bleeding resources and is being forced to balance his battlefield ambitions against mounting domestic strain.

Had he been less enamored of his own imperialist propaganda and belief in Russia’s divinely-willed greatness, Putin could have secured the deal many elites in Moscow wanted early on from Trump, who bent over backwards to accommodate him – even rolling out the red carpet in Alaska. The Kremlin miscalculated, believing it could compartmentalize Ukraine from US-Russia relations and that Trump would eventually lose interest.

But Trump craves the Nobel Peace Prize, while Washington increasingly sees Ukraine as an important partner, particularly for its battlefield drone innovations that the United States itself needs.  Zelensky recently unveiled a $90 billion “Mega Deal” for American weapons alongside a “Drone Deal,” under which Washington would directly purchase Ukrainian-made drones.

On September 28, Ukrainian HIMARS rockets reportedly struck a thermal power plant in Russia’s Belgorod Oblast, causing major blackouts. The strike was likely coordinated with U.S. support. Just days later, the Wall Street Journal reported that Trump had authorized American intelligence agencies to help Ukraine plan long-range strikes on Russia’s energy infrastructure. For the first time, Kyiv will receive U.S. targeting data for refineries, pipelines, and power plants deep inside Russia.

Washington is also weighing delivery of Tomahawk cruise missiles as Kyiv scales up its own long-range programs – including plans to mass-produce domestic “Flamingo” cruise weapons. Zelensky cautioned Russian leaders that they should “know where the bomb shelters are.”

One Russian commentator voiced alarm on Telegram: “Apparently, the situation with the war will soon become even more acute. I’m talking about Tomahawk missiles. It is no coincidence that air raid drills were held today in Russian cities. Everyone should know where the nearest bomb shelter is.”

Russians are already feeling the economic pain from Ukrainian drone and missile strikes. Unfortunately for them, it will only intensify. Overdue mortgages in Russia rose 7% in a single month and a staggering 120% over the past year, as delinquency rates look exponential. Some Russians will have to choose between paying for gas or their homes. Compounding the misery is high inflation (over 20% according to independent analysts) and the virtual inevitability of a recession (according to Russia officials). That amounts to every economist’s nightmare: stagflation.

How will a deteriorating economy approaching collapse affect Putin? “While many assume Putin maintains a firm grip on power, we’ve seen how fragile that control can be – just as it was during the Prigozhin mutiny in the summer of 2023,” said Oleksandra Ustinova, a Ukrainian lawmaker from the Holos party.

Ustinova’s point is worth underlining. Economic decay is always destabilizing for policymakers, regardless of whether they are democrats, communists, or fascists. Democrats almost invariably pay the price in elections, communists have to pretend that their subjects share their ideological blinkers and enjoy misery, while fascists need money to pay the secret police and army.

Small wonder that Trump branded Russia a “paper tiger.” The Kremlin overreacted in a bid to prove otherwise – and only looked insecure. Putin’s spokesman Dmitry Peskov even felt obliged to respond directly: “Russia is by no means a tiger. Russia is traditionally seen as a bear. There is no such thing as paper bears. Russia is a real bear.”

The upshot is that Putin and his regime are in trouble, even as they project unlimited bravado. The paper tiger can’t and won’t win its war against Ukraine, while the stagflationary economy is doomed to deteriorate and living standards for growing numbers of Russians decay. Russia’s political and economic elites, who’ve already lost much, will lose more. If world and Russian history is a guide to Putin’s future, expect a coup or a political illness that will lead to his departure.

Prigozhin will be viewed by future historians as only the first stage of Putin’s demise.

About the Authors:

David Kirichenko is an Associate Research Fellow at the Henry Jackson Society. His work on warfare has been featured in the Atlantic Council, Center for European Policy Analysis, and the Modern Warfare Institute, among many others. He can be found on X/Twitter @DVKirichenko.

Dr. Alexander Motyl is a professor of political science at Rutgers-Newark. A specialist on Ukraine, Russia, and the USSR, and on nationalism, revolutions, empires, and theory, he is the author of 10 books of nonfiction, including Pidsumky imperii (2009); Puti imperii (2004); Imperial Ends: The Decay, Collapse, and Revival of Empires (2001); Revolutions, Nations, Empires: Conceptual Limits and Theoretical Possibilities (1999); Dilemmas of Independence: Ukraine after Totalitarianism (1993); and The Turn to the Right: The Ideological Origins and Development of Ukrainian Nationalism, 1919–1929 (1980); the editor of 15 volumes, including The Encyclopedia of Nationalism (2000) and The Holodomor Reader (2012); and a contributor of dozens of articles to academic and policy journals, newspaper op-ed pages, and magazines. He also has a weekly blog, “Ukraine’s Orange Blues.”