The Russia-Ukraine Donbass conflict and the threats to the oil and gas industry
By: Intelligence Fusion
Tags: Russia, Threat Intelligence, Oil, Ukraine, Risk Management

The impact of the Donbass conflict on oil and gas

Russia’s invasion and continued possession of the Donbass region and the Crimea Peninsula since March 2014 has subsequently caused significant, strategic level damage to Ukraine’s economy. Looking at Figures 5 and 6, the fighting between Ukraine and the DPR/LPR in the southern edges of the Dnipro-Donetsk basin, along with its proximity to Russia-Ukraine borders, would appear to deny Ukraine the full use of its largest oil and gas basin. Furthermore, the possession of Crimea by Russia would appear to deny Ukraine access to its Crimea Oil and Gas basin as well as use of its Deepwater Licences due to the risk of Russian naval activity in the Black Sea.

Adding to the above problems is the impact of Russia’s invasion on Foreign Direct Investment (FDI) in the industry. After the conflict began in 2014, oil and gas firms Royal Dutch Shell and Chevron withdrew their investments in the Yuzovsky and Olesska shale gas blocks, affecting even the Carpathian basin despite it being insulated from the fighting. As shown in Figures 4–6, the withdrawal of these investments has amplified the impact of losing the Dnipro-Donetsk basin and the Crimea basin (Cunningham, 2014; Russia Today, 2015; Alexeev, 2014; Central Intelligence Agency, 2021; Intelligence Fusion, 2021).

Figure 5 — Donbass conflict hotspots, oil and gas resources, and major gas transmission lines (Source: Intelligence Fusion, Outside the Beltway Blog, and The Energy Consulting Group)

Figure 6 — Donbass conflict hotspots and controlled territories (Source: Intelligence Fusion)

Furthermore, ongoing monitoring of the conflict has indicated that mining, oil and gas infrastructure continues to be affected by ceasefire violations. Shown in Figure 7, the actual incidents themselves and the growing threat of mines and unexploded ordnance (UXO) pose a threat to current infrastructure and personnel now and in the future. Adding to this problem is reporting which indicates that from 2024, Russia could end its contracts with pumping gas through Ukraine — denying Ukraine billions in revenue — based on the upcoming completion of the Nord Stream 2 pipeline which will bypass Eastern Europe, rendering many of the current pipelines largely irrelevant to Russia’s economic interests.

Figure 7 — Incidents relating to oil, gas and mining in Ukraine (Source: Intelligence Fusion)

Finally, recent reports suggest the DPR intends to bolster the local mining economy and has — allegedly — been exporting goods to countries which include Russia, the UK, Japan, Ukraine, Poland, Belarus, Lithuania, Latvia and Estonia. These claims of ‘exporting goods’ are more than likely to be selling goods via the black market to criminal networks — given the DPR is fighting against Ukraine — rather than legitimate trade with other countries. Given the crime incidents which have been logged which are linked to or caused by the current war — as shown in Figure 8 below — the environment in the Donbass region would appear to be conducive to such trading. Such trading will bolster the DPR’s revenues to continue fighting and increase Russia’s access to natural resources at the expense of Ukraine’s economic health and legitimate operations in the oil and gas sector (Radio Free Europe/Radio Liberty, 2021; Intelligence Fusion, 2021; AFP, 2020; Yermolenko and Panchenko, 2021).