Will Russia skim the cream off the oil crisis due to the war in Iran? It looks like it will

Illustrative photo. Photo: Dmitry Lovetsky / AP

Two possible scenarios for the development of events

While before the start of hostilities in Iran, Brent oil was sold at prices around $70 per barrel, as of March 12, it costs around $100. At its peak, prices reached $116.

According to Yauhen Makaruk, a specialist in the energy security department at iSANS, two scenarios should now be considered: the Strait of Hormuz opens within the next 1-2 weeks or it closes for a long time. Makaruk calls the second scenario very unlikely. If traffic through the channel is restored soon, oil prices will quickly begin to decline.

"For now, it looks like if the war stops, oil prices will drop even lower than they were on February 27. Because prices have recently been inflated due to the expectation of war. Therefore, if the war ends, the market will most likely return to the January situation (around $60-65 per barrel)," Makaruk believes.

Russia in the black

But even in the event of a rapid resolution of the crisis, the current situation in the oil market plays into Russia's hands, as rising oil prices lead to a significant increase in their budget's oil and gas revenues.

"In addition to the direct increase in prices, Iran was Russia's competitor in supplying sanctioned raw materials, primarily to China. Now Russia has no competitor willing to offer significant discounts, so the situation with the price of Russian oil in China may improve for Russia for a longer period."

Павялічыць

Photo: Alexander Kazakov Sputnik Kremlin Pool Photo via AP

On the other hand, the expert adds, Iran was a significant ally of Russia in other areas, so in some matters, Russia might even lose more. Among such examples, Makaruk names the halt of construction of a nuclear power plant in Iran, which was handled by Rosatom.

The fact that there is some damage to oil infrastructure in Iran may also benefit Russia in terms of oil sales to China. Although for now it is minor, it will still take time to restore it.

"But global markets will not feel any particular changes from this, as Iran did not export that much oil – up to 2 million barrels per day," the expert explains.

A prolonged crisis is even more beneficial for Moscow

As for the second scenario, if the conflict is prolonged, the strait remains blocked for a long time, and consequently, oil prices remain high for a long time, this could very significantly affect the revenues of the Russian budget.

Accordingly, this will also positively affect the situation in Belarus, as Russia is its main economic partner.

"But for now, most analysts lean towards the strait being opened quickly," says the expert.

There are nuances

Yauhen Makaruk draws special attention to the fact that oil production in Russia has been falling for the last three months.

"Their resource base is deteriorating. Most fields are old, new ones are almost not being introduced, and an increasing share of resources is classified as hard-to-recover. That is, rising prices are undoubtedly an increase in income for Russia. But whether it can supply more oil to the market than it did in previous months is a big question," says Makaruk.

Павялічыць

Illustrative photo. Photo: "Nasha Niva"

In his opinion, Russia's oil production volumes are limited by physical capabilities, not by external market demand.

Besides China, another important destination for Russian oil is India. Almost 15% of the oil passing through the Strait of Hormuz is destined for India.

The United States of America has already informed its G7 partners that they may limit the easing of oil sanctions against Russia with supplies to India.

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