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Russia and Ukraine may have struggled to shift things significantly on the battlefield for more than 16 months, but a new phase of the war is moving the needle in a way that\u2019s having wider repercussions. \u00a0<\/p>\n
Both sides are\u00a0now targeting energy assets to hit their enemy\u2019s economy, and the collateral damage is showing up in global markets.<\/p>\n
The International Energy Agency\u00a0warned on Friday<\/a>\u00a0that Ukrainian drone attacks on Russian oil refineries risk disrupting trade in petroleum products like diesel. European gas prices jumped as much as 10% after Russia struck\u00a0Ukraine\u2019s gas and power infrastructure this week.\u00a0<\/p>\n Ukraine\u2019s army is facing\u00a0ammunition shortages<\/a>, while the US is stalling new funding and European allies are trying to figure out how to ship more weapons. The latest strategy is to systematically attack Russian energy facilities, despite Washington\u00a0voicing concern<\/a>\u00a0about the effect on oil and gas prices.<\/p>\n So far this year, Ukraine targeted\u00a014 major refineries and two smaller plants in Russia, with most of the attacks being successful in disrupting operations.<\/p>\n Meanwhile, the Kremlin has launched three large-scale assaults on Ukraine\u2019s electricity generation and directed drones and missiles at key gas infrastructure for the first time since its invasion more than two years ago. On\u00a0Thursday,\u00a0Russia destroyed<\/a>\u00a0the largest power plant in the Kyiv region in what President\u00a0Vladimir Putin said was a\u00a0tit-for-tat response<\/a>\u00a0for Ukraine\u2019s attacks.<\/p>\n What\u2019s changed is that targets that were previously off limits are now coming into play, according to\u00a0Sergey Vakulenko<\/a>, who spent a decade as an executive at a Russian oil producer and is now a scholar at the Carnegie Endowment for International Peace.<\/p>\n \u201cBoth sides are probably realizing that the war on the front is turning into a stalemate and they cannot get any decisive outcome there,\u201d Vakulenko said. \u201cIt also seems that initially there were certain explicit or implicit gentlemen\u2019s agreements making some targets off-limits. After two years of brutal war, some if not most of these agreements are probably dead.\u201d<\/p>\n The escalation might also simply be down to new military capabilities.\u00a0Russia\u2019s bombardment of\u00a0Ukrainian energy sites<\/a>\u00a0has been larger and better planned than the attacks in the previous two years, knocking out generating facilities and limiting power supplies.<\/p>\n For its part, Ukraine is at its\u00a0most fragile moment<\/a>\u00a0since Russia\u2019s invasion, according to Western officials with knowledge of the situation.\u00a0Kyiv is\u00a0using long-range drones to attack the oil refineries in an attempt to disrupt fuel supplies to the army, hit Russia\u2019s finances and the Russian population psychologically. But Putin\u2019s war machine remains formidable.\u00a0<\/p>\n Ukraine\u2019s recent strikes come amid\u00a0a dire shortage of\u00a0ammunition<\/a>\u00a0and manpower and gaps in its air defense following an unsuccessful counteroffensive last year. Russian forces have also had incremental gains in Ukraine\u2019s east, though it remains to be seen whether the Kremlin will have enough resources to deliver a significant breakthrough.<\/p>\n US Defense Secretary Lloyd Austin urged Ukraine to focus on military targets instead because of the impact on global markets. Ukraine has been warning, though, that\u00a0it can lose the war if more than $60 billion of aid\u00a0held up by Congress for months<\/a>\u00a0isn\u2019t approved.<\/p>\n Ukraine is in close contact with its allies and has listened to their concerns, people familiar with President Volodymyr Zelenskiy said. The lack of ammunition and Russian attacks on Ukrainian towns and cities means Kyiv has to do everything to hit the enemy, the people said, speaking on condition of anonymity.<\/p>\n Officials also questioned American statements that attacks may push gasoline prices up, arguing that if Russia is forced to reduce refining it will increase exports of crude oil to the countries not involved in sanctions.\u00a0<\/p>\n Ukraine has targeted refineries with combined capacity of about 3.4 million barrels a day, Bloomberg calculations show. However, some of the affected facilities can deploy spare or underused processing units. Undamaged plants are also raising their throughput.<\/p>\n Drones have reached targets as far as 1,200 kilometers (746 miles) away. Analysts at\u00a0JPMorgan Chase<\/a> & Co. said that puts\u00a019 Russian refineries with a combined capacity of 3.8 million barrels a day \u2014\u00a0or more than half the nation\u2019s capacity \u2014\u00a0in play. If the range increases to 1,500 kilometers, another 600,000 barrels would be at risk, they\u00a0wrote.<\/p>\n Russia expects to have all the damaged refineries repaired by June, Energy Minister Nikolai Shulginov told the nation\u2019s media earlier this month. Officials\u00a0including Deputy Prime Minister Alexander Novak have also\u00a0reiterated\u00a0that the domestic fuel market remains stable and demand is fully met.<\/p>\n In Kyiv, meanwhile, the Russian strike this week set ablaze the turbine hall of the coal-fired Trypilska plant some 45 kilometers south of the capital. The facility was hit by six missiles, a person familiar with the strike said on condition of anonymity.\u00a0<\/p>\n