Russia is now producing less oil, but the more significant aspect might be what occurs to the value of each barrel after it has been removed from the ground.
What is now becoming clear is that Russia’s oil problem is not just a problem of production.
A draft of a Russian government forecast obtained by Reuters states that production of oil and gas condensate in 2026 will be around 494.2 million metric tons, which is equivalent to about 9.88 million barrels per day, a decrease of 17.2 million tons on 2025 levels and the smallest annual figure since 2009. Moscow has also lowered its production forecasts for 2027 to 2029, indicating that the authorities do not expect a quick recovery to the earlier levels.
There was yet another warning on September 11. The International Energy Agency brought its forecast for Russian crude production in 2026 down to 8.7 million barrels per day, having first estimated August crude output at 8.36 million barrels per day. Although the Russian government and the IEA figure the industry in slightly different ways, they cannot be directly compared, yet both indicate that Russian production capacity is under increasing pressure.
Focusing merely on the number of barrels that Russia pumps might cause one to overlook the more important financial aspect.
The real issue now is the amount of economic and fiscal value that Russia can obtain from each barrel it continues to produce.
Russia Is Losing Part of the Refining Multiplier
Crude oil has value; it becomes much more valuable when it is turned into products such as gasoline, diesel, jet fuel and others.
The importance of that difference is enormous at the present time.
European gasoline refining margins have recently risen above $62 per barrel, almost reaching the level recorded in 2022. Meanwhile, diesel margins have too increased since global refining capacity has been reduced due to disruptions in Russia and the Middle East.
Russia ought in theory to be one of the main beneficiaries of that situation.
On the contrary, the repeated strikes on Russian refineries have produced an unusual turn of events. Although Moscow is still able to produce crude oil, it now has less capacity for converting that crude into more valuable fuels.
The Russian government’s projections, as reported by Reuters, indicate that crude oil exports are likely to increase temporarily in 2026 since less oil will be processed domestically, whereas exports of finished petroleum products are expected to amount to only about 98.5 million tons.
It is not just an operational problem; it alters the economics of the barrel.
The cost and risk of extracting the crude oil remain with Russia, while another country is able to take greater advantage of the refining margin.
This situation is part of the wider imbalance that TerreneGlobe looked at in its article Russia Wants a Railway to India. Should New Delhi Say Yes? since Russia’s relationship with India has now become largely based on the export of Russian raw materials, especially crude oil.
The Same Russian Barrel Can Now Make a Round Trip
India might well be the best example of this.
The Centre for Research on Energy and Clean Air stated that India had imported a record quantity of Russian crude oil for two months running in July. Meanwhile, the amount of Russian oil products exported dropped to 4.7 million tons, which is less than half the 9.6 million tons that were exported in July 2025.
The trade then started to go in the opposite direction.
The Financial Express states that India exported about 1.66 million barrels of gasoline to Russia in June and July. Part of that gasoline was produced at the Vadinar refinery run by Nayara Energy, a refinery that is 49% owned by Russia’s Rosneft and which depends heavily on Russian crude.
The sizes of these volumes are still far smaller than those of Russia’s massive crude oil exports, a point which is important. Russia has not suddenly become dependent on India for the majority of its gasoline.
Yet in terms of economics the direction of the trade is remarkable.
Russia could extract the crude oil, transport it thousands of miles to an overseas refinery, have someone else process it, and then possibly pay to have the finished product transported back into Russia.
Yuliia Pavytska, who heads the sanctions department at the KSE Institute, pointed out part of the economic aspect of these shipments by stating that the “largest share of the profit is typically captured by traders and shipping service providers.” (Ukrainska Pravda)
What might be described as a round-trip tax on the Russian barrel is thus formed.
It isn’t a real government tax; rather, it is the economic leakage that has built up due to the extra refining, trading, shipping and logistical stages which would not have been necessary if Russia had been able to process more of the oil at home.
The Hidden Budget Cost Is Even More Interesting
There’s another aspect of this story which is mentioned less often.
Russia does not merely let its domestic gasoline prices rise freely when international fuel prices go up; instead the government has a fuel-price stabilisation mechanism called the damper, through which it makes compensation to the oil companies when it would be more profitable to export fuel than to sell it within Russia.
It then becomes an expensive situation when global fuel prices surge.
According to Finance Ministry data reported by Interfax, Russian oil companies received damper payments amounting to 197.3 billion rubles in August, relating to the calculations for July. During the first seven months of 2026, the total payments linked to the mechanism had reached approximately 898.9 billion rubles.
To put it in perspective, the Russian federal budget for 2026 was expected to generate about 8.9 trillion rubles from oil and gas.
The two figures cannot be compared as a measure of net oil profitability since they relate to different sections of the fiscal system. However, the scale shows that the damper payments for the first seven months were equivalent to about 10 per cent of the government’s projected total oil and gas revenue for the year.
That is the financial pressure that is often neglected.
On the one hand, higher global oil prices can bring Moscow more revenue, while on the other hand they raise the cost of maintaining affordable fuel for its domestic population.
TerreneGlobe has already looked at the wider fragility of this model in Is Russia’s Wartime Economy Teetering on the Brink? The difficulties faced by the refinery now provide this fiscal pressure with a new mechanism.
Fuel Shortages Can Also Become an Interest-Rate Problem
The damage is not always limited to the oil industry.
On September 11 the Russian central bank maintained its key interest rate at 14 per cent since inflation is still a major barrier to the adoption of easier monetary policy. According to Reuters, disruptions to refineries and fuel shortages have led to increased prices via rising transportation and energy costs.
This sets up another feedback loop.
An attack on a refinery can lead to a decrease in fuel production. If the supply is reduced, domestic fuel prices and transport costs will rise. These costs can be passed on to the areas of food, manufacturing and distribution. With inflation remaining high, the central bank will find it more difficult to lower interest rates.
The fact that it is already borrowing heavily is significant for a wartime economy.
The economic impact of losing refinery capacity is therefore not confined to the cost of replacing the damaged equipment; it might also be seen in export revenue, government subsidies, consumer prices, inflation and the cost of capital.
The Strongest Counterargument: Russia Still Has Enormous Oil Leverage
This situation does not indicate that Russia’s petroleum industry is collapsing.
Russia is still one of the world’s top oil producers, with China and India still buying huge amounts of Russian crude, and the current global shortage of supply gives Moscow a good deal of influence.
There as well evidence that the pricing situation has become better. As the Financial Express has recently pointed out, some Urals crude was being traded at a premium of about $1 per barrel to Brent, rather than the deep discounts that had been seen in the earlier stages of the sanctions.
Deputy Prime Minister Alexander Novak has also referred to the fall in production as temporary and has connected it in part with refinery maintenance, stating that output will recover as capacity is restored.
Those arguments are important; high oil prices can make up for a surprising degree of operational inefficiency.
That is exactly the reason why the present situation merits attention.
As was previously examined by TerreneGlobe in The Oil Market’s Worst Nightmare Is the Strait of Hormuz, the world is now facing a supply situation in which a major petroleum exporter should possess enormous pricing power.
Russia has that opportunity, but some sections of its refining system are stopping it from taking full advantage of it.
What Happens Next Matters More Than the 17-Year Low
The figure worth watching is not merely Russia’s daily oil output.
Look at the composition of what Russia sells.
The present disruption could be temporary if the exports of crude oil stay strong while those of refined products begin to recover. However, if crude oil is increasingly being exported from Russia while the production of higher-value fuels continues to be limited, the financial structure of the country’s oil trade will keep shifting downstream towards refiners, traders and logistics companies outside the country.
Keep an eye on the damper payments as well.
The government’s oil windfall will seem less significant if global refining margins stay high and Moscow carries on spending hundreds of billions of rubles to stop domestic fuel prices from rising in line with international market prices.
Russia’s strength in the field of petroleum has generally been measured in barrels.
The next stage of the war might involve assessing a different factor: how much fiscal value Moscow is still able to obtain from each barrel it produces.
That number could deteriorate long before Russia actually runs out of oil.
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