The Iran conflict is a boon for Russia’s ‘war machine.’ And it’s not just about oil

The Iran war has handed Russia’s beleaguered economy a much-needed lifeline.

High oil prices are boosting the Kremlin’s coffers, helping plug a hole in its federal budget and sustain the war effort in Ukraine. But beyond oil, a global scramble for natural gas and fertilizer supplies — also choked off by the Iran conflict — could further boost Russia’s financial gains.

“The biggest winner of the (Iran) conflict is Russia,” said Ben Cahill, a senior associate at the Center for Strategic and International Studies (CSIS), a think tank in Washington, DC. The Kremlin can now sell previously discounted Russian crude “at full market prices,” marking “a pretty big turnaround” for the economy, he added.

The windfall for Russia’s public finances comes at a crucial moment. Before the Iran war, “Russia was heading toward a genuine budget crisis,” said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center, a Russia-focused research institute in Berlin. Although the latest Middle East conflict has not fundamentally changed the outlook for an economy

By mid-March, the price of Russian Urals crude stood at $90 a barrel, twice as high as in February, according to Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center. Even a smaller increase, of $30 a barrel, seen earlier in March, meant $8.5 billion of additional revenue per month, “$5 billion of which goes into state coffers and the rest – to oil companies,

A dramatic turnaround

Before the Iran war, the pool of buyers for Russian oil was shrinking and customers were demanding steep discounts, thanks to stricter sanctions from the European Union and Washington. The White House also penalized India, one of the biggest buyers of Russian crude in recent years.

That pressure was working. Exports of Russian crude and oil products plunged to 6.6 million barrels a day in February, their lowest level since the start of the 2022 invasion of Ukraine, according to the International Energy Agency. Export revenues plunged by about 30% that month compared with a year earlier.

Russian shipments to India are on course to nearly double in March, compared with February, as Indian refiners ramp up purchases to offset a fall in oil supply from the Middle East, according to Kpler, a real-time data and analytics provider.

In recent days, Indian buyers have paid more for Urals crude than for Brent crude oil, the global benchmark, said Sumit Ritolia, a senior analyst at Kpler, citing “pricing indications” from Argus, which provides data on the energy and commodity markets.

Natural gas and fertilizers

The Middle East conflict could also deliver other financial and strategic gains to the Kremlin.