Weekly Overview Cables - Ukraine war updates, and why targeting Russian refineries is a great strategy for Kyiv - one that should not be discouraged by Washington.
*note: we will discuss Putin’s new reshuffle and most importantly, the removal/relocation of the Defense Minister Shoygu in the upcoming cables.
Ukraine War Updates.
1) Russia launches its assault on Kharkiv.
Russia is bolstering its presence and intensifying its operations near Kharkiv - northeast of Ukraine.
This is an area that saw a major successful counteroffensive in the fall of 2022 - with Ukraine recovering large swathes of land in the Kharkiv axis.
Ostensibly, Russia is now making moves to reverse that.
As per statements of Major General Vadym Skibitskyi, deputy chief of Ukraine's Main Military Intelligence Directorate (GUR), as of now, Russian forces have stationed approximately 35,000 personnel along Ukraine's border in the Kursk, Bryansk, and Belgorod oblasts (Northeast/Kharkiv axis) - this aligns with independent assessments.
Available intel points towards the Russian military’s intentions to increase their presence in the area - aiming to establish a force between 50,000 and 75,000 personnel.
In the meantime, Ukrainian forces have reportedly destroyed at least 20 Russian armored vehicles since the onset of Russian offensive operations on the morning of May 10.
With that said, both Russian and Ukrainian sources describe the current Russian offensives along the border as primarily heavy infantry assaults.
It is anticipated that Russian forces will deploy reserves to escalate ongoing offensive efforts soon.
However, reports suggest that Russia lacks the manpower necessary to launch a large-scale offensive aimed at enveloping, encircling, or capturing Kharkiv City.
And given that as of right now Russia is in no position to capture Kharkiv city, we can draw three inferences from this campaign:
1) Russia is forcing Ukraine to dilute its forces and fight on multiple fronts - just before the arrival of more significant hardware from the US.
(side note: first significant $400m tranche is now on its way)
In addition, the fact that Russia is starting this new campaign without devoting enormous manpower or mechanized armor is indicative of their belief that holding onto newly captured (even if small) territories (what can be described as tactical gains) will be relatively unchallenging - they don’t expect Ukrainian ability to execute a vigorous counteroffensive along the Kharkiv axis.
2) Ground is laid for future capture and escalation: Russia is increasing its baseline level of presence so that at an opportune time, further escalation becomes possible.
Russian troops are also positioning to get closer within the tube artillery reach of Kharkiv - ensuing shelling will put further pressure on the population, encourage civilian departure from the city (enabling a smoother operation to capture the city), and will force Ukraine to allocate even more troops to counter the persistent Russian menace - drawing away from resources available for the campaigns in the southeast.
3) Even if (at least for now) this campaign doesn’t produce any significant territorial gains, additional damage to Ukrainian morale may on its own amount to a sufficiently good reason.
And there is a problem of morale - there is both direct evidence (in terms of polling and anonymous interviews from soldiers on the frontline) and indirect indications: that can be inferred from the difficulty that the Ukrainian government faces in mobilizing additional men (many of whom now openly and unashamedly admit escaping/paying bribes to avoid the draft).
(side note: Ukraine is now resorting to recruit men from prisons. A tactic first utilized by Russia’s Wagner back in 2022 - but this didn’t preclude the Russian media from (hypocritically) accusing Ukrainians of desperation. There is however another way to look at this: Kyiv is finally getting its act together and displaying willingness to do whatever it takes to win. But this should also include lowering down the conscription age all the way to 18 (from the current 25 - which itself was only recently lowered from the previous high of 27).)
And perhaps because of this change in narrative and morale, some of Russia’s most brazen assassination attempts become a possibility.
2) Ukraine spoils the most brazen assassination attempt on Zelenskyy’s life yet.
Last week, agents of the Security Service of Ukraine (SBU) detained two colonels from Ukraine's State Security Administration (agency in charge of Presidential security) - who were reportedly recruited by the FSB in order to orchestrate an assassination of President Zelenskyy.
Apparently, the two colonels were recruited to then find willing co-conspirators within the group of bodyguards in charge of protecting Zelenskyy.
According to SBU, the plotters were to use a mole to get crucial information on Zelenskyy’s whereabouts - a location that they would then attack with rockets, drones, and anti-tank grenades.
And one of the colonels involved had already purchased drones and other munitions to carry out this attack.
Some analysts interviewed by the media have jumped to a quick conclusion that the SBU had almost failed in preventing this attack - given how close the would be assassins were to the date of the assassination (some also speculate - quite reasonably - that this was a special inauguration gift to Putin.).
But this is not necessarily the case - SBU could have deliberately delayed spoiling this whole operation in order to uncover the full chain of conspirators and handlers.
With that said, there are two relatively safe conclusions that we can draw:
1) The FSB probably accomplished some recovery of its reach within Ukraine’s security apparatus.
This was the most brazen assassination attempt to date - involving some of the closest officers to the President of Ukraine.
In contrast to the previous attempts (where foreign nationals and ordinary citizens were used as tools of attack), this one demonstrated one crucial fact: the FSB has now recovered a deep reach into Ukraine’s security apparatus.
One doesn’t simply contact a colonel of a unit in charge of protecting the President - if the FSB could reach them, then it is very likely that there are a number of other high-profile FSB flips still waiting to be uncovered.
2) Morale and calculus within the highest echelons of Ukraine’s leadership has also been affected.
Last time such a level of FSB penetration was possible was right on the eve of the February 2022 invasion - in the weeks and days leading up to Russia’s initial assault on February 24.
Back then, Ukraine’s security services were helped by the CIA, and Britain’s MI6 in thwarting the FSB plans.
(side note: it is yet unclear whether similar help had a role to play in thwarting this most recent assassination attempt - but it would also not be surprising either.)
But back then, almost everyone in the West expected Ukraine to fall and crumble in the face of Russia’s invasion.
And it is easy to say in retrospect that we have overestimated Russia’s capabilities, but the truth is (given all available information at the time) that we probably estimated them about right.
It is just that Russia made a series of errors (based on faulty assumptions) in the conduct of this invasion and Ukraine over-performed.
But the main reason for this error in predicting the outcome (expecting quick Russian victory) was our view of Ukraine: without sophisticated foreign arms to defend itself, of course we expected them to crumble.
For a variety of reasons that we have covered previously, they didn’t.
But the point is that most people involved in the process - not just observers - but actual people with stakes in this event, expected Ukraine to crash and fold almost immediately.
And precisely because of this expectation, it was relatively easy for the FSB to reach so deep into Ukraine and recruit willing co-conspirators in the attempted coup that targeted Zelenskyy.
And it is only more than two years later that the FSB is once again coming close to recruiting at a similar level of senior leadership.
This means that the morale loss commonly observed in the frontline soldiers, is not really limited to them only - that there are many senior officers in the higher up leadership that are also sensing the changing winds.
The delay in the US funding of Ukraine, battlefield losses, Russia gaining air superiority and pummeling frontlines with glide bombs, and Ukraine’s own struggle to recruit soldiers are some of the most visible indications that in the near-term, tough times are ahead.
Of course, the US military aid will start to affect things for the better, Ukraine will get more patriot batteries to defend its skies (and will end up having more than most NATO member states), it will get its F-16s, and will be able to challenge Russian bombers dropping those glide bombs, and efforts are made to address the manpower gap too - so then, in the long-term, things are still looking relatively good for Ukraine.
But at this moment they are not - and this likely played a role in inducing some of the senior officers closest to the President of Ukraine to flip.
After all, at least from their perspective, it is probably easier to betray your leader if you see him going down soon in any case.
Ukraine’s campaign against Russian refineries: and it must continue.
Over the two and a half years of this war, Ukraine has embarked upon many successful military campaigns.
One of them was the successful counteroffensive in September of 2022 - retaking large territories across Kherson and Kharkiv and embarrassing the mighty Russian army.
Yet another, was successful attacks on the Russian Navy in the Black Sea - destroying (or rendering inoperative) around a third of Russian ships (and a submarine) in the Black Sea basin - so much so that: 1) the seaborne grain exports are now back at their pre-blockade levels and have reached a peak (in spite of Russia’s continuous refusal to rejoin the Black Sea grain initiative), and 2) the Russian Navy was forced to pull back its main ships away from Crimea and re-deploy them to the port of Novorossiysk
Then there were daring special ops (conducted by Ukraine’s military intelligence/HUR) against key military air bases in Russia - and even campaigns to chase down Russian mercenaries in Sudan.
And now, we have a new campaign that is producing an extraordinary return on invested resources: Ukraine attacking Russian refineries.
By early April, it was estimated that 15% of Russian refinery capacity was already knocked out.
At this rate (if continued), the figure will surely rise significantly by mid-summer.
Most recently, Ukrainian forces have reportedly executed successful drone strikes against a Russian (Lukoil) oil refinery in Volgograd Oblast, occurring overnight between May 10 and May 11.
Effect on the war efforts and domestic political situation.
First off, these cuts will affect the Russian military - post-refining, 50% of the products have fueled the Russian military (and the other half is consumed domestically or exported).
This means less fuel available to power the Russian bombers, mechanized armor units, or even its basic logistical operations.
In addition, it is important to reiterate just how much of an impact these strikes can truly make on Russian consumers: since the beginning of Ukrainian strikes, Russia has seen a 16% decrease in diesel production and a 9% decrease in gasoline production - this then led to a sharp rise in wholesale prices by March 2023, with gasoline prices hitting a six-month high in April.
Initially, Russian consumers faced stable retail prices in spite of the rising wholesale costs.
(side note: this means that either 1) Government had increased its subsidies - adding to the budgetary burdens, or 2) it the Kremlin bullied companies into accepting a lower profit margin - which comes with an extra layer of political risk. Since oligarchs typically don’t like losing their lucrative source of cash)
But this changed by the end of April - with retail diesel prices surging by 10%.
The longer this campaign goes on (and the bigger the dent in the production capacity), the more unpalatable is the dilemma faced by the Kremlin: pass the costs on consumers and face a potential backlash driven by significant worsening of the living conditions, or force the companies to operate profit-free and face another type of intra-system political crisis.
In addition, Russia will also grow increasingly dependent on the countries in its periphery - further reducing former’s prestige, and granting the latter a newfound leverage in their relations with Moscow.
For example, Russia is already importing refined products like petrol - in March, it imported 3,000 tons of fuel from Belarus (it was at zero at the beginning of this year).
Moscow was additionally forced to ask Kazakhstan to ready 100,000 tons of gasoline to supply in case of shortages.
This is a very embarrassing situation for Moscow - and in the case with Kazakhstan in particular, its leadership (already drifting towards the west - most recently, having signed a strategic partnership deal with the UK) will now be even more confident in its relations vis-à-vis the Kremlin.
In other words, this campaign has implications beyond just denting Russia’s capacity to supply fuel to its army: there are wider economic, domestic/political, and strategic implications that are still hard to fully appreciate at this relatively early stage of the campaign.
Misguided western fears around the global price of crude oil.
In fact, these are so consequential, that, wary of the global oil price spikes, Washington has even attempted to dissuade Ukraine from continuing this campaign.
(side note: and by doing so quite publicly, Biden admin officials have once again revealed their hand to Russians. There is absolutely no need to constantly remind Putin on what keeps American policymakers up at night. Washington has been consistently good at supplying Russians with materials to blackmail them with. First there was endless fear of nuclear war (which Putin milked/and is continuing to milk to the max), then there was gas and fertilizer prices, and now concerns around oil prices.)
But such fears are misguided - Ukraine is not targeting oil rigs or anything included in the supply chain of crude oil.
They are only targeting refineries and storage facilities that contain refined oil products.
This need not affect the prices of crude oil.
(side note: for those interested, there is an excellent article by Michael Liebreich, Lauri Myllyvirta, and Sam Winter-Levy going in deeper behind the reasons why - but we shall summarize the key points and build upon a similar analysis)
On the contrary, if anything, it may even reduce the price of crude by creating a perverse incentive to Russia to export even more crude oil.
Here is how: as Ukraine is destroying refineries and storages of refined products, Russia’s refining capabilities have reduced by a striking 900k barrels per day.
As such there is less of a domestic need for Russia to preserve some of its crude for its own refined product needs.
In other words, if not exported and sold for money, that 900k barrel per day will sit idly waiting for refineries to be back online.
And ordinarily, that is not a problem - but when the country is at war and needs a constant stream of revenue, it cares less about future conversion into refined products and more about current use.
In addition, it is not like Russia even has that luxury to keep the 900k barrels a day waiting in storages - it doesn’t have enough storage capacity for all this enormous surplus.
As such, it has two options: 1) Export more for cash, or 2) Produce less.
(side note: attempts to bring these oil rigs back online will be further hampered by the complex repair needs and Western sanctions blocking access to crucial parts.)
For context, back in 2023, Russia's oil production stood at approximately 10.1 million barrels per day.
Half of this output was exported, while the remainder was refined domestically into products like gasoline and diesel.
Of the exports, Russia accounted for about 10% of the world's seaborne oil product exports in 2023.
Major buyers of Russian refined oil include Turkey, China, and Brazil.
Notably, Russia has also engaged in sanction-violating fuel trades with North Korea.
Now, given that many buyers (like China and India) of Russian crude oil are already trying to diversify and reduce Russia’s share in their crude oil imports (in case further sanctions are placed on Russia, and they are unprepared for the fallout of depending solely on Moscow), and given that Russia is not in a position to safely store all of this excess oil, which is more likely: 1) that Russia will increase its exports of crude oil? or 2) that Russia will reduce production, and reduce its share in Chinese/Indian market even further (and thus, reduce its leverage over future price and other terms - as well as its diplomatic weight), and deal with the headache of missing parts and costly repairs needed to bring these oil rigs back into full production?
Surely the former scenario is more likely?
And indeed, this is not a mere hypothesis - it is borne out by actual facts: Russia has now in fact increased its exports of crude oil after endless attacks on its refineries: data shows that monthly exports of crude oil have actually increased by 9% from February to March - this means they reached their highest level in almost a year.
In other words, there are no cuts to Russian production that would have reduced global supply of oil and thus raised the prices of global crude oil - a scenario most feared by the Biden admin.
What has changed in terms of foreign exports, is that Russia has now reduced exports of its refined fuel compared to last year (and are in fact at their historic lows).
But that is not a problem for the Western consumer - Americans don’t consume Russian petrol or diesel.
Neither do the citizens of the EU.
So the fear of a cost-push inflation and dent in living standards (similar to the gas crisis (when Russian gas was cut off abruptly) in the first year of the war) will not materialize - and so there would not be extra social costs adding to the ‘‘Ukraine fatigue”
(side note: in spite of the sweeping EU bans - some Russia-originated refined products like diesel and petrol did end up on the EU market in 2023. But these were refined in countries like India and Turkey, and the total amount ending up in the European market was worth only around €1bn for the entire year - a paltry number that is almost certainly not going to move the needle on the price of petrol or diesel in the EU.)
Finally, as the campaign goes on, other entrepreneurial countries (like Turkey and India) will scale their refining capacities to address the possibility of a shortage in the amount of refined products like petrol and diesel.
True, the production levels will never rise in time to fully (or even substantially) replace Russia as one of the biggest players - but even then, the price hikes will be most noticeable in end-products rather than the price of crude oil.
In other words, Western citizens will be mostly shielded from these price rises, and if this affects the countries of the global south and China more disproportionately, then they are welcome to increase their pressure on Russia to end the war in Ukraine - participating in sanctions rather helping Moscow evade them would be a good start.
This campaign is a highly strategic and highly successful boon to Ukraine and to anyone rooting for their victory in this war.
Potential negative implications although still present, are nonetheless minimal - and are most definitely outweighed by all the gains.
In short: this strategy has a very high net positive value and must be pursued further with full vigor that it deserves.