The Peter Zeihan Podcast Series - Ukraine War Q&A: Why Does Russia Have Oil Supply Issues? || Peter Zeihan

Episode Date: May 16, 2023

The second question of the Q&A series is...if Russia is such a massive producer of oil and oil products, why are we wasting time discussing supply issues? Full Newsletter: https://mailchi.mp/zeihan/ukraine-war-qa-series-2

So, you know, Russia is this massive producer of both oil and oil products. Why do I even talk about problems with them supplying the front when it comes to fuel supplies? I mean, isn't there plenty? Well, let's look at this first from the American point of view. If you live in California or New York, you know, you know that gasoline prices are significantly higher than they are in places like Alabama or Texas. And it's not just about where the crude comes from. It's also about where it's processed. So yes, California, New York, have higher taxes, but there's also a transport component

because the stuff is produced in one area, refined in a second area, and then it has to be shipped the third area. In the case of Russia, most of the oil production, roughly 70% of the total, is in a corridor in southwestern Siberia, specifically Tudderstan and Bashkiristan going north all the way up to the Arctic Sea. And with the exception of Tudorstan, there are very few refineries in this area. So you have to then ship the oil by pipe several thousand miles to another location where it has turned into refined product.

And that refined product has to be shipped typically over 1,000 miles in order to get to the Ukrainian front. There are refineries in places like Beilgrad or near Rastavondon, which is another reason why the Ukrainians have to take those two cities out of the equation. But they're really along that entire western periphery because they used to supply the former Soviet satellite states of Central Europe, as well as a little bit of exports to the wider world. Now, because the Russians have lost the Kurtzstraight bridge,

they can't rail fuel to the southern front at all. And so most of this stuff has to either rail into eastern Ukraine or go by truck to everywhere else, which is one of the many reasons why the Ukrainians have been going after the truck fleet and have destroyed most of the military truck fleet at this point. Another thing to keep in mind is that this is one of the many, many reasons why the Ukrainians are putting so much time and effort developing technologies and getting equipment from the West.

to target oil infrastructure. And in that, fuel tanks are absolutely the best thing to go after, and cargo trains are probably number two, and then, of course, trucks are number three. Now, you can technically target refineries. The problem is one drone or one missile or one 2,000-pound bomb is only to do so much damage. Refineries are huge.

Most refineries, once you include the standoff distance, are something like three square miles. And they're this forest of columns and columns, pipes. And yeah, throwing some explosives into that is generally frowned upon, but when you have a non-commercial-grade explosive like, say, diesel or gasoline or naphtha, when you hit it with fire, yes, it burns, but it only explodes under very specific conditions. And so if you want to blow up an entire refinery, it's going to take you a huge amount of ammo to do so. And this is one of the reasons why I always found myself talking down threats to the oil sector back in the 2000s and

2010s when groups like Hezbollah or the Iranians or al-Qaeda or the Islamic State would try to target a refinery. It's just not a place where you hit it with a pinprick and you trigger a chain reactor. This is not the death star. And that means the Ukrainians have to follow by the same rules here. If they really want to take a refinery offline, it's a huge amount of effort. And if they are going to target a piece of energy infrastructure that's not a specific pipe or fuel cell or train, the one they're going to go after is the city of Samara in southern Russia. Samara serves as a junction point for multiple pipes coming in from northern Siberia, coming to and from eastern Siberia, coming up from the Caucasus, and of course going west.

roughly 40% of Russian crude is capable of going through this nexus in addition to its refineries. Now, the Ukrainians probably do have the capacity right now to throw a drone or two into it. But again, they're going to need dozens, if not hundreds, or a lot more sabotage. So if you are going to see something a little deeper in Russia besides what we've seen so far, which has kind of been in a band around that part of occupied Ukraine, what you're going to see is the Ukrainians probably going after the pipes themselves. It won't take things offline for very long. Pipes are easy to replace, especially in segments.

But if they hit them enough, they disrupt the flows, the refinery shut down. How do we know? This happened in Chechnya during the 1990s. The Grozny region used to be the third largest refining center in the entirety of the former Soviet world, and it was a significant oil producer as well. Now, that's all gone to zero, but it gives you an idea of the long, grinding, nutritional fight

that has to happen to really take this stuff offline for good. And so in the meantime, you go after fuel tanks, you go after fuel trains. Okay, next question.