Oil producers take yearly $500B for zero production growth amid Russian disruptions

The global oil industry is bleeding money just to stand still. According to reporting from the International Energy Agency on Tuesday, oil producers are now forced to spend $500 billion every year just to keep existing fields from collapsing.

That’s just to stop production from falling apart. And the losses are accelerating faster than anyone expected.

Fatih Birol, the executive director of the IEA, said the agency analyzed data from 15,000 oil and gas fields worldwide and found an increasing reliance on shale drilling is making global supply more unstable.

“The situation means that the industry has to run much faster just to stand still,” Fatih said.

Shale falls, OPEC+ tightens grip as drilling gap widens

The IEA warned that if companies stop spending entirely, global oil output will drop by 5.5 million barrels per day, which is the same amount Brazil and Norway combined produce.

The biggest shock would hit U.S. shale, where production would fall by 35% in the first year if drilling were paused. Unlike traditional fields, shale wells dry up fast and need constant drilling to stay alive.

This new assessment comes after the IEA spent the past few years warning of oversupply. In 2023, the agency had cautioned producers to “look at their business plans,” citing fears of a “staggering glut.” Now, that tone has reversed.

And the change isn’t happening in a vacuum. The Trump administration, now back in the White House, had previously criticized the IEA for undermining investment in fossil fuels with forecasts about peak oil demand arriving by the end of the decade.

Fatih and his team are now warning about a different kind of peak: peak stability. As oilfields in the U.S. and other non-OPEC regions decline faster, the IEA says the global balance of oil production is moving toward the Middle East and Russia, where massive oilfields deplete more slowly.

Right now, OPEC and Russia hold about 43% of the global market. That could rise to over 65% by 2050 if current trends continue.

Ukraine drone attacks knock out Russian ports, limit exports

At the same time, Russian oil infrastructure is under direct attack. On Tuesday, three people familiar with the situation said that Transneft, which operates over 80% of Russia’s pipeline system, warned oil producers that output cuts may be needed if Ukraine’s drone strikes continue damaging key terminals.

Since August, Ukrainian drones have hit at least 10 Russian refineries, cutting total refining capacity by nearly 20% at one point. They’ve also targeted two of Russia’s most important export ports, Ust-Luga and Primorsk, both on the Baltic Sea.

Russian officials have not confirmed the scale of the damage, but people close to the situation said Transneft has limited how much oil companies can store in its system. The company also said it might have to reject excess supply if more damage happens.

In a public statement, Transneft dismissed the reports as false, calling them part of the West’s “information war” and saying, “The appearance of such fake news with reference to some unnamed sources in the Russian fuel and energy complex causes damage to the image of PAO Transneft.” The company added:

“It can only be caused by the attempts to destabilize the situation within the framework of the information war unleashed by the West against the Russian Federation.”

Despite the denial, Primorsk was hit directly for the first time last week since Russia invaded Ukraine, causing operations to get temporarily suspended at the port, which handles over 1 million barrels per day, more than 10% of Russia’s total production.

Ukrainian President Volodymyr Zelenskiy claimed the attack “inflicted significant damage” and called these strikes “the sanctions that work the fastest.”

Russia’s storage problem makes these attacks worse. Unlike Saudi Arabia, Moscow doesn’t have the capacity to hold large volumes of oil while ports are down. That means when infrastructure gets hit, output must slow. Primorsk resumed limited operations on Saturday, but there’s no clear timeline for full repairs.

This wasn’t the first hit. A drone strike in August already damaged the Ust-Luga terminal, further straining Russia’s export system. And while Moscow has rerouted much of its oil to India and China since the West imposed sanctions, the damage to infrastructure is a growing threat.

Meanwhile, OPEC+ has raised Russia’s output quota again. Under the latest agreement, Moscow is allowed to produce 9.449 million barrels per day in September, up from 9.344 million in August. Whether Russia can actually meet that quota while ports are being bombed is unclear.

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