Kamal Ghorui
The disruption of Middle East energy supplies due to the Iran war is pushing global oil and gas prices higher, a development that could strengthen Russia’s finances and indirectly support its war effort in Ukraine.Rising energy prices are increasing the revenue Russia earns from oil and gas exports – a key pillar of the Kremlin’s budget that helps fund government spending, including military operations, reported news agency AP. Prices for Russia’s oil exports have risen from under $40 per barrel as recently as December to about $62 per barrel. The increase began with fears of war and accelerated after tanker traffic through the Strait of Hormuz – a route that carries around 20 per cent of the world’s oil consumption — was largely disrupted.
Although Russian crude still trades at a significant discount to the global benchmark Brent crude, the price is now above the $59 per barrel level assumed in Russia’s 2026 budget plan. Brent crude itself has climbed above $82 from the closing price of $72.87 recorded on the eve of the US and Israeli strike on Iran.Oil and gas taxes account for up to 30 per cent of Russia’s federal budget.At the same time, disruption in the production and shipment of liquefied natural gas (LNG) from Qatar — one of the world’s largest suppliers — is expected to intensify global competition for available LNG cargoes, including those from Russia.
A change in fortunes for Russia
Before the latest escalation in the Middle East, Russia’s energy revenues had weakened.State oil and gas income fell to a four-year low of 393 billion rubles ($5 billion) in January, while the country’s budget deficit widened to 1.7 trillion rubles ($21.8 billion) that month, the largest shortfall on record, according to Russia’s Finance Ministry.The decline in revenue had been driven by lower global oil prices and deep discounts on Russian crude caused by Western sanctions and restrictions targeting Russia’s “shadow fleet” of tankers used to ship oil to major buyers such as China and India.Economic growth has also slowed as military spending has stabilised. President Vladimir Putin has responded by increasing taxes and borrowing more from domestic banks to keep government finances stable during the fifth year of the war in Ukraine.“Russia is a big winner from the war-related energy turmoil,” said Simone Tagliapietra, energy expert at the Bruegel think tank in Brussels, quoted AP. “Higher oil prices mean higher revenues for the government and therefore stronger capability to finance the war in Ukraine.”Amena Bakr, head of Middle East and OPEC+ insights at analytics firm Kpler, wrote: “With Middle East barrels facing logistical disruption, both India and China face strong incentives to deepen reliance on Russian supply.”Meanwhile, the price of natural gas for future delivery in Europe has surged, raising concerns about the European Union’s plan to phase out imports of Russian LNG by 2027.The spike in gas prices has revived memories of the 2022 energy crisis that followed Russia’s decision to halt most pipeline gas supplies to Europe after the invasion of Ukraine.
Strait of Hormuz closure key risk
Analysts say the extent of Russia’s potential financial gains will depend largely on how long the Strait of Hormuz remains closed to shipping.Alexandra Prokopenko, an expert on the Russian economy at the Carnegie Russia Eurasia Center in Berlin, said a short conflict would likely bring Brent crude back to about $65 per barrel and “a short-lived spike would not fundamentally change” Russia’s fiscal outlook.A middle scenario, where some shipping resumes and oil stabilises around $80 per barrel, could provide Russia with “some fiscal relief,” depending on how long prices remain elevated.However, a prolonged closure of the strait – especially if Iranian strikes damage refineries and pipelines — could push oil prices to $108 per barrel, increase inflation and push Europe closer to recession.“This scenario would bring the largest windfall to Russia,” she said.Even a few weeks of disruption to LNG shipments from the Gulf could trigger political pressure within Europe to reconsider plans to stop signing new Russian LNG contracts after April 25, according to Chris Weafer, CEO of Macro-Advisory Ltd.“The EU is under even more pressure to work with the U.S. to find a solution to the Ukraine conflict and, very likely, to consider easing the plan for a total block for Russian oil and gas imports,” he said.“Countries such as Hungary and Slovakia and those who have been big buyers of Russian LNG, will press for that review.”Weafer added that Russia’s budget performance could already improve in the near term.“In any case the Russian federal budget will have a much better result in March,” he said, citing smaller discounts on Russian oil and strong global demand.
Russia signals readiness to increase supplies
Russia has also indicated it is ready to increase energy exports.Deputy Prime Minister Alexander Novak said Russian oil was “in demand” and that Moscow was prepared to expand supplies to China and India, according to the Tass news agency.Meanwhile, Kirill Dmitriev, head of Russia’s sovereign wealth fund, mocked European leaders over energy security concerns.Writing on X, he said: “surely the wise Ursula and Kaja have a backup LNG plan. Or maybe not.”Despite efforts to reduce reliance on Russian energy, several European countries continue to import significant volumes.Belgium, France, the Netherlands and Spain together import around 2 billion cubic metres of Russian LNG each month. In addition, Hungary receives roughly 2 billion cubic metres monthly via the Turkstream pipeline running across the Black Sea.Tagliapietra estimated that Russian gas supplies could total about 45 billion cubic metres in 2026 — roughly 15 per cent of Europe’s gas demand.Replacing those volumes would be difficult if the global LNG market tightens due to disruptions in the Middle East, he said.
