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Following a wave of drone attacks targeting Russian oil refineries and storage facilities, Ukraine has launched its first strike against a major steel plant within the Russian mainland. Recent hits on Russian energy infrastructure have likely played a part in reducing the country’s refining capacity by hundreds of thousands of barrels per day, as well as the implementation of a six-month gasoline export ban. If Ukraine can scale up its economic warfare campaign with more drones and the provision of long-range missiles from its allies, Russian exports of energy and metals products could be further constrained, narrowing global supplies.

Moscow relies heavily on the output of petroleum and industrial products to shore up funding for the war effort. Trade restrictions implemented by the US and European Union (EU) have slashed Russia’s steel shipments throughout the past two years. Meanwhile, Russia’s expanding zone of control within Ukraine has significantly degraded the latter’s own steel industry, which was one of the largest in the world prior to 2022. Ongoing advances by the Russian military could to jeopardize more facilities as the war progresses.

Related ETFs: VanEck Steel ETF (SLX), Invesco DB Oil Fund (DBO), United States Gasoline Fund, LP (UGA)

In January, MRP highlighted a spate of Ukrainian drone attacks targeting Russia’s vital energy industry. One of the hits were up to 850km away from the Ukrainian border and utilized special forces operations behind enemy lines. Oil and gas facilities had been targeted by the Ukrainians plenty of times before, primarily in Crimea, but the increased frequency and location of the targets deep within the Russian mainland are unique and shows that Ukraine’s long-range capabilities are improving.

Attacks on Russia’s economic infrastructure have continued in the month since, as Ukraine seeks to disrupt revenues flowing to Moscow and impede the country’s war machine that has recently taken the initiative on the frontline. Damage to refineries and gas storage plants, and the threat of further strikes, have likely played a role in Russia halting all gasoline exports for a period of six months beginning in March. Though crude oil futures and finished petroleum prices have broadly risen throughout the past month, Russia may lose out on the benefits of these gains if they come from the destruction refining capacity and petroleum products in storage. Bloomberg reports that Russian refining rates have recently fallen by -380,000 barrels per day compared with most of December, the month before Ukraine’s barrage of Russian oil and gas facilities began. Kyiv’s success on the energy front may be expanded to other sectors of Russian industry – particularly the manufacture of steel supplies.

Last weekend, a Ukrainian drones assaulted a steel plant in Lipetsk, owned by top Russian steelmaker NLMK. Lipetsk is the headquarters for NLMK, lying roughly 280km from the nearest portion of the Ukrainian border. According to Newsweek, the targeted facility produces flat steel products, making up 18% of total Russian output of the metal. Explosions caused large fires within the plant, but the governor of Lipetsk Oblast claimed there was no significant impact on the plant’s operations. The Russian Ministry of Defense reported that…

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