Amid growing concerns about potential retaliation from Iran for Israel’s alleged killing of Hamas and Hezbollah leaders, Russia has extended restrictions on gasoline exports until the end of October. These unrelated events underscore the extent to which geopolitical developments – including war, sanctions and other events – are changing and threatening global oil and gas markets.

Russia’s invasion of Ukraine in 2022 and the subsequent US and Western sanctions have lasting consequences that will exacerbate new disruptions. The Russian attack and Western response have already significantly changed Russia’s role in the global energy system and are also affecting the system itself.

Russia has successfully diverted its oil exports from Europe to China and India, which absorbed 90-95% of Russia’s crude exports in 2023. With its rising exports eastward, Russia has overtaken Saudi Arabia to become China’s largest oil supplier. Yet these exports have traded at a discount due to a combination of a Western price cap mechanism and greater bargaining power of buyers willing to buy Russian oil. India’s largely inconvertible rupee and a growing Indian trade deficit with Russia have required creative payment arrangements, which both sides appear to have worked out.

While Russian oil companies struggle with sanctions, Russian refineries have been subjected to smaller but persistent and targeted attacks by Ukrainian drones. These attacks have reportedly affected 12 to 17 percent of Russia’s refining capacity and may have contributed to the Russian government’s renewed expansion of gasoline export limits. The official Russian government newspaper attributed the drop in gasoline production that led to the export ban to “planned and unplanned repairs” at key refineries, including some of the facilities damaged by Ukrainian drones.