The ongoing conflict in Iran has disrupted oil and gas supplies in the Middle East, leading to a significant rise in energy prices that may bolster Russia’s financial capacity to continue its military operations in Ukraine. Prices for Russian oil exports have surged from under $40 per barrel in December 2022 to approximately $62 per barrel. This increase is attributed to fears of war and the interruption of tanker traffic through the Strait of Hormuz, a vital route for nearly 20% of the world’s oil consumption.
Despite trading at a discount compared to the international benchmark, Brent crude, which has increased to over $82, Russian crude is now trading above the $59 per barrel threshold anticipated in the Russian Finance Ministry’s budget for 2026. Oil and gas revenues form a crucial part of the Russian federal budget, accounting for as much as 30% of total income.
The cessation of liquefied natural gas (LNG) production by major supplier Qatar is further intensifying global competition for available cargoes, including those from Russia. In January, Russia’s state oil and gas revenue fell sharply to a four-year low of 393 billion rubles (approximately $5 billion). A record budget shortfall of 1.7 trillion rubles (about $21.8 billion) was reported for the same month, largely due to lower global prices and deep discounts resulting from U.S. and EU sanctions.
Economic growth has stagnated as military spending remains high. To manage state finances, President Vladimir Putin has implemented tax increases and increased borrowing from domestic banks. “Russia is a big winner from the war-related energy turmoil,” noted Simone Tagliapietra, an energy expert at the Bruegel think tank in Brussels. She emphasized that rising oil prices translate into higher government revenues, enhancing Russia’s ability to finance its military efforts in Ukraine.
The geopolitical landscape is shifting, with countries like India and China likely to increase their reliance on Russian oil as logistical disruptions impact Middle Eastern supplies. Amena Bakr, head of Middle East and OPEC+ insights at data and analytics firm Kpler, commented on the incentives for these countries to deepen their ties with Russian suppliers.
The situation in Europe is also evolving, with natural gas futures prices soaring, prompting questions regarding the EU’s plans to cease imports of Russian LNG by 2027. The energy crisis of 2022, which saw Russia significantly cut pipeline gas supplies, looms large in the minds of European leaders.
The extent of the impact on oil prices largely depends on the duration of the Strait of Hormuz closure. Alexandra Prokopenko, an expert at the Carnegie Russia Eurasia Center in Berlin, suggested that a swift resolution could stabilize Brent prices around $65 per barrel. Conversely, a prolonged disruption could drive prices to as high as $108 per barrel, exacerbating inflation and pushing Europe toward recession.
“Such a scenario would yield significant financial benefits for Russia,” Prokopenko stated. Even a few weeks of interruption in Gulf LNG supplies could lead to renewed calls within Europe to re-evaluate plans to ban new contracts with Russian suppliers after April 25, as noted by Chris Weafer, CEO of Macro-Advisory Ltd. He pointed out that EU member states, particularly those with high reliance on Russian LNG, would likely advocate for a reassessment of the total ban.
As Russian oil remains in demand, Deputy Prime Minister Alexander Novak confirmed that Russia is prepared to increase supplies to China and India. Meanwhile, Kirill Dmitriev, head of Russia’s sovereign wealth fund, took aim at European Commission President Ursula von der Leyen and EU foreign policy chief Kaja Kallas on social media, questioning their contingency plans for LNG.
Despite the sanctions, Belgium, France, the Netherlands, and Spain continue to import approximately 2 billion cubic meters of Russian LNG monthly. Additionally, Hungary imports a similar volume through the Turkstream pipeline. This amounts to a total of 45 billion cubic meters expected in 2026, equating to 15% of total gas demand for that year. Tagliapietra emphasized the challenges of replacing such volumes if the LNG market tightens due to ongoing shutdowns in Qatar.
As the situation develops, the implications for Russia’s budget and the broader geopolitical landscape remain significant, highlighting the interconnectedness of energy markets and military funding.
