Ukrainian attack reveals key Russian vulnerabilities

Hey everybody, Peter Zeihan here coming to you from above the very active Kilauea Volcano. That’s the crater that cooked off last year. Today we’re going to talk about an assault that happened last week, the Ukrainian sent squad of drones north out of Ukraine, over Russian airspace, into the Gulf of Finland to attack the Ust-Luga almost, I hope I pronounced that right, oil refinery and loading facility.

Now normally, this wouldn’t really matter. Because normally, drones as we’ve been seeing can’t get through any sort of meaningful air defense. But the Russian air defense in this area appears to be just as crappy as it is everywhere else in the country. So a bunch of them got through. The other reason I wouldn’t normally care about this is most refineries, everyone gets all ooh and aah, they expect Hollywood explosions when a bomb goes off in a refinery, you know, you gotta keep in mind scale here. Most refineries are over a square mile. And this one’s no exception. There’s a lot of standoff distance among the different facilities. So if something does blow, it doesn’t blow up the whole thing. And crude oil at room temperature isn’t even flammable. So the warheads these bombs can carry, which are less than 100 pounds, probably with the models that were used probably under 20 pounds, it’s not that you can’t do damage, but you can’t do real damage. But this is not just a refinery, this is also a loading facility. And in a refinery, once you’ve made your fuels, fuels being more flammable than raw crude, you then put them into a truck or a pipe and send it away. With a port facility, you put into a big giant tank, and then a large vessel comes by and sucks off what it needs and goes on its merry way. And so the tanks themselves are the vulnerable points here.

Now, judging from the size of the explosions and the fires that were started, the tanks were not hit. That’s just something that you should have in the back of your mind when you are evaluating, when somebody says a refinery or a certain piece of energy infrastructure was hit user, you know what to look for. What’s interesting here, two things: Number one, it took the Russians more than three days to put out the fire. And they put it out the wrong way, using water in the near-Arctic winter, which caused a lot of water to freeze and then expand and wreck more infrastructure. Damage assessments are still underway. We don’t know how bad it was. And had this been a normal attack, we would have known within 24 hours whether or not anything substantial had been done. But here we are nearly a week out and we still really don’t have any more but the vaguest ideas if the facility is shut down. Now, there’s a lot of reasons why this matters. Number one, while the Europeans have put sanctions on seaborne crude, seaborne oil product is in a loophole, so they were still taking stuff from this facility. And with this shutdown, all of a sudden, sanctions have gone up to a whole new level. And we’re gonna have a very good idea of how the Europeans can absorb or not this newest change.

Quick add-on: The Ukrainian attack on Ust-Luga was on Sunday the 21st. And less than 72 hours later, the Russians were able to begin shipping out again. However, what is being shipped out is primarily well, almost exclusively, oil and something called condensate, which is kind of a raw product somewhere between natural gas and oil. The actual refining complex remains completely offline, there’s no naphtha, there’s no fuel, there’s no intermediate products that are coming out at all. And at present, the Russians are still completing their damage assessments. And at the pace they’re going, we probably won’t have any information on the level of damage until probably March. And then with their very, very thin, remaining skin of skilled labor, they can start talking about repairs.

Second, this is the first significant Ukrainian attack against a significant economic asset of the Russian Federation. And at least on the surface, it looks like it was much more successful than they ever thought was possible. That means that the northern parts of the Baltic Sea in the Gulf of Finland are suddenly in a danger zone that is well within the Ukrainians’ proven range of operation. Now, the Ukrainians and the Russians haven’t really gone against civilian shipping right now. But I can’t think of a better target then an oil loading and refining platform, such as what we’ve got at Ust-Luga. Again, apologies for the, we’re just going to put the spelling right here so you can see what I’m having trouble with. Okay. So this is the sort of thing we should now watch for in the future. Because this is not the only facility of this type which is within the Ukrainians’ reach. There are a number of facilities [sic] on the Black Sea and [sic] on the Black Sea, and closer to St. Petersburg, also on the Gulf of Finland. And now that the Ukrainians have proven that a few things can slip through, you can bet that they’re going to target all of them. And all told, if you look at all of the infrastructure combined, its combined export and throughput capacity is in the vicinity of three and a half million barrels a day, which is about three and a half percent of global output. So if you put a meaningful dent in export infrastructure, it’s impossible for the Russians to shunt the stuff somewhere else, there’s nowhere else to go. And so it just backs up through the system.

There’s also one other thing to look at, the fact that the damage control crews proved to be so incompetent is something that we’re starting to see at the edges as the Russian economic system frays. The Soviet educational system collapsed back in 1986, which means that the youngest people who are worthy of terms like engineer turned 64 this year. And so when I think of fire suppression, I think of something that normally I could not just pick up the hose and go do it. You want someone with specialized training, and especially if you’re talking about petroleum, natural gas, or refined product, fires, you definitely want someone has some idea what they’re doing. Russia’s running out of those people. It’s not just that a million people have fled the country and a half a million had been drafted and committed to the war, been killed. They don’t have much of a skilled labor pool left. And what they do have is being dedicated to the war itself, air defense in the vicinity of the war, or the military-industrial complex to keep the war going. So we’re seeing some very serious frays with the system. This, this is not the sort of thing that they should have gotten wrong, that fire should have been put up very quickly with things like foam, and it wasn’t. And that suggests the Russians’ ability to maintain their overall system is starting to feel the strain of all of this, and they don’t have a backup plan. There isn’t enough labor in the country to redirect from somewhere else, especially skilled labor. All right. That’s it for me. Take care.