Russia has windfall benefit from Iran war but the boost may be short-lived

Russia finds itself in an eager position to benefit from the turmoil in its Middle East partner and ally, Iran.

The almost complete closure of the Strait of Hormuz by Tehran sent global oil and gas prices soaring, draining the coffers of major oil and gas producers like Russia.

Sergei Vakulenko, senior fellow at the Carnegie Russia Eurasia Center, told CNBC on Tuesday that Russia had windfall benefits from the Iran war, which resulted in billions of dollars in energy price increases.

“So far the price of oil, and especially in the Urals, has increased by more than $60 a barrel and that brings in about $9 billion a month to the Russian state, which is quite substantial,” he told CNBC’s “Squawk Box Europe.”

“Even countries like India which were considering buying less oil from Russia are again buying more oil and the United States is also issuing rebates for it,” he said. 30 days relaxation issued by White House Earlier in March, countries were enabled to buy approved Russian oil and petroleum products stranded at sea in an effort to control rising global energy prices.

price of a barrel of Russian Ural Crude Oil Currently at $115 on Tuesday. On February 27, the day before the US and Israel began bombing Iran, the price per barrel was $57. He said Russian exports of helium, aluminum and nitrogen fertilizer had also boosted state revenues, but “to a much lesser extent” than oil.

Vakulenko said that while the Russian state budget had its own problems, with a deficit of about $35 billion in the first two months of the year, the boost from the Iran war was “obvious”.

Vakulenko said this unexpected windfall was helping Russian President Vladimir Putin postpone planned cuts in state spending in various sectors of the economy that would have proven unpopular.

The analyst said, “What he was spending on the war meant he was basically mortgaging the country. Now, he doesn’t have to do that.”

The duration of this windfall for Moscow will depend on the duration of the conflict, but turmoil in the Middle East not only eases some fiscal pressures, but also serves as a distraction from the problems that have plagued Russia’s economy since its invasion of Ukraine in 2022.

inflation, Currently at 5.9%The Russian Central Bank remains a thorn in the side Interest rates should be kept extremely high at 15%. Russia’s central bank is struggling to control price increases caused by the Kremlin’s massive military spending and an economy serving the country’s war machine, as well as rising food prices, labor shortages and sanctions.

General (retired) Richard Shirreff, NATO’s former Deputy Supreme Allied Commander Europe, told CNBC on Tuesday that the short-term gains Russia was seeing from the Iran war reflected a troubled situation.

“This is an economy that is in the death zone — it’s exactly the same situation as a mountain climber over 8,000 feet high — the body starts to eat itself, it’s suffering long-term existential damage — but he (Putin) is benefiting economically (right now),” Shirreff told CNBC’s “Squawk Box Europe.”

Obviously, Ukraine is concerned about the extent to which the Iran war is benefiting its enemy Russia – not only on the economic front, but also from a geopolitical perspective. Ukrainian President Volodymyr Zelensky claimed this week that some of the country’s partners had called on Kiev to reduce attacks on Russia’s oil fields because of the surge in global oil prices.

The Iran war is proving to be a significant distraction from its own conflict and diverting military resources from the US towards Iran.

“The Americans fired four times more Patriot missiles in the first four days of the war than they supplied to Ukraine in four years,” said Shirreff, co-founder and managing partner of Strategia Worldwide.

“So, Putin is benefiting because there will be less kits to provide to Ukrainians,” he said.