Drones impact global refining and energy markets, and soaring diesel prices trigger a cost crisis

Drones are changing the cost of war, and some oil refineries have been attacked by drones, pushing up energy prices.

The answer to why a drone that only costs a few hundred to tens of thousands of dollars can shake up the global diesel market lies in refineries. Foreign media pointed out that drones are changing the cost of war. This change has now spread from the battlefield to the energy market. This is not because of a sudden shortage of crude oil, but because low-cost drones continue to damage refining equipment that processes crude oil into fuels such as diesel. The point is, these devices can often be blown up within minutes and take much longer to repair.

Experts point out that drones are changing the cost of war, and the price of fuel produced by drone-damaged refineries is rising sharply. Today, with diesel prices approaching $200 a barrel, these costs will ultimately be borne by truckers, farmers, airlines, and households that use oil for heating.

According to Bloomberg data, the price difference between European diesel and North Sea Brent crude oil once widened to about US$94 per barrel about two weeks ago. However, under normal circumstances, this price difference, which represents refining profits, is usually only US$12 to US$18. Even when the Russia-Ukraine war breaks out in 2022 and the European energy crisis is at its worst, it will only be about US$71. Now, not only has it surpassed the high point at that time, but it has also continued to maintain a high level since the end of March this year.

The article points out that the cause of this abnormal trend is not the production cuts by oil-producing countries, nor the damage to the Gulf of Mexico refining facilities by hurricanes, but the continued attacks on refining equipment by cheap drones. Once these facilities are damaged, it will take far longer to rebuild than to destroy them, directly pushing up the price of diesel and other refined oil products.

Experts point out that the cost gap also highlights new problems in modern warfare. The cost of a small FPV attack drone is only about US$500 to several thousand US dollars, and the "Shahed-136" suicide drone designed by Iran only costs tens of thousands of US dollars. However, if a US$4 million missile is used to destroy a US$20,000 drone, even if the hit rate is high, this cost structure is difficult to maintain for a long time.

As a result, the US military began to turn to cheaper interception methods. The U.S. Army signed a $460 million contract with AeroVironment this month to purchase the high-energy laser system LOCUST. The company says LOCUST costs less than $5 per interception. From $20,000 to $5, this is exactly the new cost ratio the Pentagon hopes to achieve.

The drone threat is also expanding. In the past two years, more than a dozen NATO countries have reported airspace violations by drones or similar devices, and the U.S. Department of Defense has cooperated with the Department of Homeland Security and the Federal Aviation Administration to establish authority to shoot down drones over domestic airports. The U.S. Congressional Budget Office estimates that protecting a military installation from the threat of small drones costs about $74 million to build, and then requires about $5 million per year to maintain and operate.

Budgets have also shifted significantly. In the U.S. defense budget for fiscal year 2027, procurement expenditures increased from US$205 billion in the previous year to US$413 billion, and research and development expenditures also increased from US$179 billion to US$344 billion.

NATO plans to invest more than $40 billion in the next five years to strengthen its anti-drone capabilities.

However, these funds are not fully reflected in the stock prices of drone companies. It is reported that the investment portfolio consisting of seven listed companies related to drones and anti-drone has fallen by about 28% in the past 12 months. Only two companies, AeroVironment and DroneShield, were named in the article; among them, AeroVironment has fallen by about 40%, but in fact the company's backlog of orders has reached US$1.5 billion, an annual increase of 37%.