Russia reports 1% growth as refinery output declines 18%

Russia’s economy grew 1% in the third quarter, down from 1.3% in the previous period, the Federal Statistics Service reported.

The figures show continued expansion, but with less momentum as the central bank warns of damage to productive capacity from Ukrainian drone strikes. Fuel shortages and inflation pressures are also constraining its scope to lower borrowing costs.

Refining losses spread beyond fuel

The statistics service reported that refining production fell 18% from a year earlier during July–September. That was the largest decline in its comparable quarterly series, which extends back to 2020, placing the sector’s contraction well beyond the modest slowdown in overall GDP growth.

The agency’s figures also showed a deeper decline in mining and a shift into contraction for wholesale trade, linked to reduced fuel production. The weakness therefore extended beyond the facilities processing crude, affecting other parts of the economy that produce and distribute goods.

The central bank had warned before the GDP release that drone attacks were reducing capacity in several industries. Its assessment identifies a supply constraint: damaged facilities leave businesses with less ability to produce, even if demand remains.

Defense spending complicates the policy balance

President Vladimir Putin has called for the government to sustain economic growth. Meanwhile, the government has raised defense expenditure again, abandoning its earlier intention to curb that spending as the budget shortfall increases.

Those commitments sit alongside a monetary constraint. Fuel shortages and related price pressures have limited the central bank’s room to cut interest rates, leaving the push for continued expansion alongside restrictions on policy support.

The distinction between demand and capacity matters for the response. If borrowing becomes cheaper while damaged infrastructure remains unavailable, stronger spending would not by itself restore refinery throughput or repair the facilities needed to move goods.

Black Sea exports face separate pressure

Tatiana Orlova of Oxford Economics pointed to another channel of economic damage before the GDP figures were released. She attributed much of the reduction in crude shipments through the Black Sea to escalating hostilities around that sea and the Sea of Azov, distinguishing it from the effects of refinery attacks.

That assessment separates disruption to domestic processing from disruption to overseas deliveries. If pressure on export routes persists, restoring refineries alone would not resolve the obstacles facing crude shipments; international buyers would still have to contend with interrupted deliveries.

If refinery production recovers, greater fuel availability could ease one source of domestic price pressure and support the businesses involved in wholesale distribution. For the central bank, that would address one constraint on easing, rather than establish that broader inflation pressures had subsided.

If attacks instead keep processing and transport capacity unavailable, Russia would face continuing limits on production while export customers confront delivery uncertainty. Refining volumes, wholesale activity and Black Sea crude shipments would then provide distinct tests of whether the disruption is easing or spreading.