Ukraine strikes Moscow refinery in largest drone attack, deepening global diesel crisis

Ukrainian drone strikes on Russia's Moscow Refinery are pushing an already strained global refined products market toward a new crisis.

Major Strike on Russian Energy Hub

According to China Central Television (CCTV) reports, on September 20, the General Staff of the Armed Forces of Ukraine announced that Ukrainian forces had struck the Moscow Refinery in the Moscow region during the early hours of the day. Ukrainian officials reported a large-scale fire at the refinery, with the AVT-6 primary refining unit and integrated crude processing units among the facilities hit.

The Ukrainian military stated that the Moscow Refinery is one of Russia's largest oil refining enterprises, with an annual crude processing capacity of approximately 12 million tonnes, producing gasoline, diesel, aviation fuel, heavy fuel oil, and other petroleum products. Ukraine claims the refinery supports Russian armed forces requirements.

The attack on September 20 was described as the "largest-scale assault" on the Russian capital. Moscow Mayor Sergei Sobyanin stated that more than 1,600 drones had been shot down since September 19, with 450 intercepted as they approached Moscow.

Ukrainian President Volodymyr Zelensky later posted on social media platform X, stating that Ukraine's long-range strikes on the Moscow region had "produced a very significant impact," noting that a major Russian oil industrial facility and logistics hub had been hit.

The refinery, owned by Gazprom Neft, is located approximately 16 miles from the Kremlin, with a crude processing capacity of about 245,000 barrels per day (approximately 12 million tonnes annually). The facility primarily produces gasoline, diesel, and aviation fuel, supplying not only the Moscow metropolitan area but also directly supporting Russian armed forces requirements.

In response, Russia launched new airstrikes across multiple Ukrainian regions. According to Ukraine's State Emergency Service and Air Force, Russian forces launched 138 drones, striking industrial and railway facilities in Kyiv, Vinnytsia, and Odesa regions. The attack on the Kyiv region has resulted in four deaths.

Global Diesel Market Under Strain, Prices Hit Record Highs

The Moscow attack comes at a time of extreme vulnerability in global diesel supply. According to Bloomberg data, global diesel futures and refining margins both climbed to historic highs last week as supply from the Gulf region and Russia faced severe disruption. The US heating oil crack spread—measuring the price difference between fuel and crude oil—surged to $117 per barrel, the highest since Bloomberg began tracking the data in 2009.

US diesel retail prices exceeded $6 per gallon for the first time last week and climbed further to $6.45 on Friday, setting a new record. Globally, fuel shortages have already appeared at gas stations in rural Brazil, Libya, and parts of Africa, putting critical fuel supplies for global industry, transportation, and agriculture under severe strain.

Bloomberg Senior Commodity Strategist Mike McGlone warned that the current diesel price shock mirrors the gasoline price surge during the 2008 energy crisis. Meanwhile, reports indicate Russia is considering extending its diesel export ban, further exacerbating already tight supply conditions.

Geopolitical Conflict Upends Decade-Long Refining Landscape

The current predicament facing the global refining system stems from a collision between capacity expansion patterns over the past decade and ongoing geopolitical conflicts. Over the last ten years, the Middle East and Russia invested heavily in expanding refining capacity. Kuwait, the UAE, Iraq, and Saudi Arabia built or expanded large refineries, enabling the Middle East to double its diesel exports between 2017 and 2025, surpassing North America to become the world's largest diesel exporter.

However, according to International Energy Agency (IEA) analysis, two wars have abruptly reversed this supply pattern. Since February, restricted passage through the Strait of Hormuz has forced Kuwait, the UAE, and Iraq to sharply reduce exports. Meanwhile, Houthi attacks have compressed Saudi Arabia's export capacity through the Red Sea. IEA Senior Oil Market Analyst David Martin stated: "We are witnessing what may be the tightest diesel market ever."

Western countries face difficulty filling this gap during the crisis. Alan Gelder, Senior Vice President of Refining at consulting firm Wood Mackenzie, noted that massive Middle Eastern investments have long depressed profit margins for Western refiners, leading major Western oil companies to refrain from building new refineries for nearly three decades. More than ten refineries in Europe and the US have closed since 2015. While Western refineries are currently operating at full capacity and shifting toward diesel production, they remain unable to effectively fill the supply gap.

US Export Ban Debate Intensifies Market Uncertainty

Amid surging domestic fuel prices, debate over export restrictions is heating up within the United States. Representative Tim Burchett introduced a diesel export ban bill this week, while Senate Majority Leader John Thune expressed openness to the proposal. Former President Donald Trump attributed rising oil prices to the Russia-Ukraine war rather than Middle Eastern tensions. However, IEA data indicates that the volume of diesel blocked from the Persian Gulf is approximately three times the size of the Russian shortfall.

Analysts and multiple think tanks have issued strong warnings that a US export ban would not solve domestic problems but would instead cause global harm. The American Petroleum Institute noted in a 2022 letter to then-Energy Secretary Jennifer Granholm that export restrictions would drive up domestic oil prices.

Research from the Center for Strategic and International Studies (CSIS), the Dallas Federal Reserve, and Columbia University indicates that US refining capacity is heavily concentrated along the Gulf Coast, with infrastructure designed entirely for export markets. Domestic pipelines are currently operating near capacity, and global tanker capacity is tight. CSIS emphasized in its report that implementing a ban would inevitably lead Gulf Coast refiners to sharply reduce refining activity due to lack of profitability. This would cause US domestic gasoline and diesel supplies to decline rather than increase, partially or completely offsetting initial inventory accumulation, ultimately putting upward pressure on the domestic prices the ban aims to suppress—and inevitably triggering further price spikes in other regions globally.

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