Russia gets a windfall from Iran war but boost could be short-lived

Russia found itself in the interesting position of taking advantage of the turmoil hitting its partner and ally in the Middle East, Iran.

Tehran’s almost complete closure of the Strait of Hormuz caused global oil and gas prices to rise, filling the coffers of major oil and gas producers such as Russia.

Russia’s unexpected energy price increase from the Iran war has reached billions of dollars, Sergey Vakulenko, senior fellow at the Carnegie Russia Eurasia Center, told CNBC on Tuesday.

“So far, oil prices, and especially the Urals, have increased by more than $60 per barrel, which brings the Russian state almost $9 billion a month, which is quite a significant figure,” he told CNBC’s “Squawk Box Europe.”

“Even countries like India that were considering buying less oil from Russia are buying more oil again, and the US is even issuing exemptions for this.” he said. 30-day exemption granted by the White House In early March, in an effort to curb increases in global energy prices, countries were given the opportunity to purchase sanctioned Russian oil and oil products stranded at sea.

Price of a barrel Russian Urals crude oil It currently sits at $115 on Tuesday. The barrel price was $57 on February 27, the day before the US and Israel began bombing Iran. He noted that Russia’s exports of helium, aluminum and nitrogen fertilizer also increased state revenues, but were “somewhat smaller” than oil.

Vakulenko noted that although the Russian state budget had its own problems, the deficit reached nearly $35 billion in the first two months of the year, yet the increase brought on by the Iran war was “obvious.”

Vakulenko said that an unexpected development helped Russian President Vladimir Putin postpone planned cuts in public spending, which were very unpopular in various sectors of the economy.

“The money he spent on the war actually meant that he was holding the country hostage. He doesn’t need to do that anymore,” the analyst said.

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

Inflation, currently 5.9%Continues to be a thorn in the side of the Central Bank of Russia Interest rates must be kept stubbornly high at 15 percent. Russia’s central bank is struggling to rein in price increases driven by rising food prices, labor shortages and sanctions, along with the Kremlin’s massive military spending and an economy geared toward serving the country’s war machine.

Retired Gen. Richard Shirreff, former deputy to NATO’s Supreme Allied Commander Europe, told CNBC on Tuesday that the short-term benefits Russia has seen from the Iran war belie its beleaguered situation.

“This is an economy in the death zone; in exactly the same position as a climber above 8,000 feet; the body begins to eat itself, facing long-term existential damage – but it [Putin] earns economically [right now],” Shireff told “Squawk Box Europe.”

Ukraine is understandably concerned about the extent to which the Iran war benefits its arch-enemy Russia; not only on the economic front, but also on the geopolitical side. Ukrainian President Volodymyr Zelenskyy this week claimed that some of the country’s partners are calling on Kiev to reduce attacks on Russia’s oil sector due to the rise in global oil prices.

The Iran war is a significant distraction from its own conflict and directs military resources it might have received from the United States to Iran.

“The Americans fired four times more Patriot missiles into Ukraine in the first four days of the war than they had in four years,” added Shireff, co-founder and managing partner of Strategy Worldwide.

“So Putin wins because the supplies to the Ukrainians will decrease,” he said.