Hours-long queues of vehicles have become a common sight outside fuel stations across Ukraine.
The impacts of Russian attacks on fuel infrastructure and oil depots, coupled with the blockade of Ukraine’s Black Sea ports, have resulted in a countrywide fuel shortage that the government is desperately seeking to address.
It comes as fuel becomes a primary target — and crucial commodity — for both sides as the fighting continues.
“The goal of the aggressor country is to stop Ukraine’s economy by artificially creating a fuel shortage,” says Ukrainian Economy Minister Yulia Svyrydenko in a statement provided to Global News, referencing current attacks on Ukrainian infrastructure.
Fuel has been a tightly controlled commodity in Ukraine since the outset of the war, with enforced rations across the country able to stave off shortages — until now. It’s led to pleas from authorities for Ukrainians to take public transport and to conserve fuel for the military, with analysts hopeful it could change residents’ private vehicle-reliant mindsets for good.
A devastating missile strike in early April to Ukraine’s main fuel producer, the Kremenchuk Oil Refinery, as well as subsequent attacks on oil depots around the country, have diminished supply. Storage facilities are no longer keeping stock onsite due to the risk of shelling.
In a press conference Thursday, a leading energy offical said 15 oil depots across Ukraine had been destroyed or damaged by rocket strikes.
In the meantime, the highest echelons of the Ukrainian government are pleading for calm in the face of a looming crisis.
Ukrainian President Volodymyr Zelenskyy noted the shortage in an address last week, saying queues and rising prices at the pump were a result of Russian targeting of gas facilities, as well as the Kremlin’s blockade of Ukraine’s ports.
“The occupiers are deliberately destroying the infrastructure for the production, supply and storage of fuel,” he said.
Svyrydenko pledged to eliminate the deficit within a week, but said prices would rise as fuel was imported from western Europe to make up the shortfall.
However, analysts believe the shortage will last much longer, due in most part to the logistical issues of getting fuel into the country. This will not impact the military, however, as it has separate reserves.
“I think May will be difficult. It will be a dry month and the shortage will continue,” says Artem Kuyun, of A95 Consulting Group, which specializes in energy sector research.
“It’s a really intense situation. Ukraine has never before had this situation and traders have gone to extreme measures. “
Fuel rations in Ukraine
Fuel rations have helped manage supply since the early weeks of the war.
Kyiv motorists are currently limited to 10 litres per visit. Fuel stations also recently introduced a coupon system where larger amounts of fuel can be purchased online for a higher price. Limits vary depending on the region and chain.
“Petrol stations put fuel aside for police and for emergency services, the rest they can sell in a small amount,” Kuyun says.
As Ukrainian depots have been hit, however, that consumer shortage has arrived, forcing many of the country’s fuel stations to close.
The stations that are open require hours in line. On Monday, one line in central Kyiv was more than 85 cars long, snaking along the edge of the main highway.
The shortage was being exacerbated by a “mental and psychological factor” of car owners visiting several fuel stations per day and taking the ration of 10 litres per visit, said Andriy Gerus, chairman of the Verkhovna Rada Committee on Energy, on Thursday.
However, this was an “emotional” response, as the shortage “will not get worse.”
He said there would be “much more regular supplies from European countries” going forward.
Kyiv’s municipality last week urged residents, via a message on Telegram, to stop driving private vehicles and take public transport to conserve fuel for the military.
“Remember the needs of the army and our defenders,” the Telegram post said.
For Ukrainians, this is a big ask, a cultural rethink. Unlike in other European countries, Ukrainians don’t commonly use public transport, so the fuel shortage should force residents to rethink how they get around.
In 2021, the TomTom travel index showed Kyiv was the third most congested city in the world, of 404 cities surveyed. Odesa, Kharkiv and Dnipro also ranked in the top 25.
Ukraine imports fuel from Russia/ Belarus
Pre-war, Ukraine consumed about 12 million tonnes of raw fuel per year, Kuyun says. That includes eight million tonnes of diesel, 2.5 tonnes of gasoline and 2 million tonnes of LPG.
But its reliance on imports from Belarus and Russia have severely impacted its supply. About half of Ukraine’s gasoline needs are met by Belarus, Kuyun says, while more than 62 per cent of the country’s diesel is imported from Russia and Belarus and 74 per cent of LPG is imported from Belarus, Russia and Kazakhstan.
The bulk of the rest was produced by Ukraine’s Kremenchuk Oil Refinery and the Shebelinka Gas Processing Plant in the Kharkiv region.
Russian missile strikes badly damaged the Kremenchuk refinery on April 2, and the plant in Shebelinka was taken offline days after the war began due to the threat of shelling.
Other strikes have targeted fuel reserves, including major attacks on an oil refinery and three fuel storage facilities near Odesa and on what Russia claimed was Ukraine’s largest military fuel storage site in the village of Kalynivka outside Kyiv.
Russia has also accused Ukraine of attacks on its own fuel infrastructure, which, if true, appear to be the main target of Ukrainian offensives on enemy territory.
On April 1, the Russian Defence Ministry claimed two Ukrainian Mi-24 helicopters carried out an airstrike on an oil depot in Belgorod, near the border between the two countries.
Weeks later, fires broke out at two Russian oil depots in the city of Bryansk near the Ukrainian border.
Ukraine has denied liability for both attacks. In an interview with Global News, National Security and Defense Council Secretary Oleksiy Danilov suggested the Bryansk fires were caused by Russians “smoking cigarettes.”
The targeting of fuel depots create further issues, Kuyun says, specifically for storage.
“Nobody wants to stock fuel on depots anymore. You see on the maps these depots are big, obvious things — there’s no problem for the Russian military to find it,” Kuyun says.
“There is no way to store it. So it comes straight off the trucks.”
In her statement, Svyrydenko said supplies had been secured in Western Europe and “now we are deciding how to bring them to the territory of Ukraine as soon as possible.”
“This situation will lead to a slight rise in the price of petroleum products. This is primarily due to the higher cost of logistics, due to complex routes and the use of several modes of transport,” she said.
Poland, a strong supporter of neighbouring Ukraine, is now acting as a major conduit for the majority of Ukraine’s fuel needs. It’s also a transit point for foreign aid and weapons.
However, this transportation process takes about two to three weeks from start to finish, Kuyun says, which is why he believes the shortage will last throughout the month of May.
Gas prices soar in Ukraine
Russia’s invasion of Ukraine sent oil and gas prices soaring in early March, due to Russia’s role as the world’s third largest oil producer, after the U.S. and Saudi Arabia.
About half of Russia’s crude oil exports went to Europe before sanctions were announced.
The war brought into focus the world’s reliance on cheap Russian oil and gas, as countries around the world struggled to balance its condemnation of the invasion while also ensuring their oil and gas needs were met.
The European Commission published plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies of the fuel “well before 2030.” The bloc relies on Russia for 40 per cent of its natural gas and a quarter of its oil imports.
“All of this is part of a long-term policy of Russia. They are always the cheapest. This policy has played for a long time and we are addicts to this product,” Kuyun says.
The price of fuel at the pump in Ukraine has soared in recent days, reflecting conditions in much of the rest of the world.
The cost of a litre of petrol is currently about 36 hryvnia (about $1.57 in Canada), up from about 33 hryvnia in February, before war broke out, according to MinFin, an independent Ukrainian finance and investment portal.
In mid-March, weeks into the war, prices spiked at about 42 hryvnia per litre, before the government abolished excise tax and reduced VAT on fuel from 20 per cent to seven per cent.
While diesel was cheaper than petrol before the war, its increase in price has far outpaced petrol and is now about 41 hryvnia per litre.
The Ukrainian government began regulating prices at the fuel pump in 2021, with a formula based on market conditions, logistics cost and margins, Kuyun says.
However, as war broke out the formula was “out-of-date,” Kuyun says, and the government asked traders to sell oil below their wholesale rate. This led to short selling of fuel and traders no longer buying fuel from abroad, further depleting oil reserves, Kuyun says.
According to the U.S. Energy Information Administration, Ukraine held 400 million barrels of proved oil reserves at the beginning of 2021. However, it’s not known how many of that remains.
How Russia 'weaponizes' oil and gas
Energy is one of Russia’s favoured weapons of war. By cutting off access to gasoline, diesel and oil, Russian President Vladimir Putin is attempting to gain a military upper hand.
That method of warfare is now being projected onto other countries, too.
Rupert Russell, author of Price Wars: How the Commodities Markets Made Our Chaotic World, says oil and gas have been a “long-standing weapon used by the Kremlin.”
Throughout the Soviet era, Russia provided cheap, heavily subsidized fuel to the Eastern bloc — a reliance on which has carried over into the present day.
Russia’s role in setting global oil and gas prices works especially well during crises like these when prices are high, Russell says, because supply is constrained.
However, Russia doesn’t produce enough oil to be a “swing producer,” like Saudi Arabia is, Russell says. That means it is less effective in weaponizing the price of oil as it is for natural gas.
Russia is the world’s largest natural gas exporter.
“Gas is just not the same [as oil]. Russia can just set the price, or cut off the supply entirely. It’s a totally different relationship. That’s why the gas weapon is so important for them. If you’ve got this really easy lever that you can pull at any time, you’re going to want to protect that,” Russell says.
“You don’t have to invade a country, you don’t have to sponsor terrorism. … It’s just a phone call.”
Russia cut off Poland and Bulgaria from its natural gas supplies in late April, after the countries refused to meet new demands to pay for the deliveries in rubles.
A spokesperson for the Ministry of Climate and Environment told Global News that Russia’s monopoly on the supply of gas throughout Europe is a “political project that threatens geopolitical security” and gives Russian President Vladimir Putin “further tools for blackmail.”
“The European Union’s dependence on Russian raw materials has given Russia a powerful financial stream. Billions of dollars have flowed and continue to flow through Nord Stream 1, for example,” the spokesperson said.
“All of this is the financial base of Russia that made the Russian aggression against Ukraine possible. Today it is the Ukrainians who are paying the price for the mistakes of Western politicians — unfortunately, their blood is the currency.”
Poland says its gas storage facilities are 76 per cent full, compared to an average level for the European Union of 31 per cent.
“Thanks to our consistent actions, we are in a situation where we can become completely independent from Russian gas supplies, because unlike other countries we do not have a contract with Gazprom until 2040,” the spokesperson said.
Poland also seemed to already be diversifying its oil import suppliers, having recently imported 95,000 mt of diesel from Saudi Arabia – a single “unprecedented” delivery from the Arab state, according to market insight company S&P Global.
Finding alternative suppliers for oil is not a significant problem for the EU, Russell says, as European countries can look to other suppliers such as the Gulf states. However, many countries are “scrambling” to find other suppliers for natural gas.
Russia, on the other hand, is unlikely to be too worried about a loss of customers, as other buyers, such as China and India, will step in as further discounts are offered, Russell says.
“If the EU embargos Russia they will find other buyers worldwide. Because the prices are high, the odds are stacked in Russia’s favour,” Russell says.
“Even ISIS was able to sell oil.”
Comments