U.S.-Israeli strikes in the Middle East have driven up the price of oil, strengthening the Kremlin’s ability to fund its military campaign.
Russian President Vladimir Putin entered the new year facing a painful choice — limit his so-called special military operation in Ukraine or risk serious damage to his economy.
Almost overnight, U.S. President Donald Trump handed him the solution. U.S.-Israeli strikes on Iran have sent oil prices soaring, boosting the Kremlin’s main source of revenue and making it easier for Putin to sustain his war effort.
After Israel bombed Iranian oil facilities this weekend, benchmark crude prices soared to above $100 per barrel, hitting their highest mark since the summer of 2022, when markets spiked following Russia’s full-scale invasion of Ukraine.
For Russia, the surge in oil prices amounts to an economic windfall at a crucial moment, as the cost of four years of war in Ukraine threatened to spill over into a domestic economic crisis.
The assault on Iran may undermine Moscow’s claim to stand by its allies, but it is already benefiting Russia’s economy and, by extension, its war against Ukraine — leaving the Kremlin well placed to emerge as one of the main beneficiaries of the expanding conflict in the Middle East.
Economic turnaround
Only several weeks ago, the mood among Russia’s economic elite was grim.
The Russian finance ministry’s budget plan for this year assumed a baseline benchmark of $59 per barrel of Urals crude, the country’s main export blend. But in January, energy revenues plunged to their lowest level since 2020, compounding a disappointing tax haul.
As Western sanctions, high interest rates and labor shortages strained the economy, tension between the finance ministry and the central bank on how to mitigate the damage became increasingly visible.
“It was far from a collapse,” said Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center. “But the government was facing tough choices, had to cut its spending and raise taxes and even consider some reduction in military expenditure.”
Stopping the war in Ukraine was never on the table, Vakulenko added, but it was becoming clear that even on that front, Russia would have to “economize a bit.”
Then Israel and the U.S. attacked Iran. As Tehran retaliated and the conflict spilled over into a regional war, shipping through the Strait of Hormuz has stalled, sending oil prices soaring.
“Suddenly, Moscow received this gift,” said Vladimir Milov, a former deputy energy minister turned Kremlin critic in exile. “They had their lifeline.”
These days, he said, Russian officials are “very, very happy.”
‘Strategic mistake’
Instead of selling at a discount because of Western sanctions, Russian crude may now fetch premium prices as its main buyers — India and China — scramble to secure supplies.
What’s more, they’ll have Washington’s blessing.
Last Friday, the U.S. Treasury issued a 30-day waiver allowing India to buy Russian crude to “enable oil to keep flowing into the global market.”
A day later, Treasury Secretary Scott Bessent said the United States could “unsanction other Russian oil,” a sharp reversal from last year’s policy of penalizing countries for buying Russian energy.
Unsurprisingly, the Kremlin is using the moment to maximum advantage.
“Russia was and continues to be a reliable supplier of both oil and gas,” Putin’s spokesperson Dmitry Peskov told reporters on Friday in what sounded like a sales pitch, adding that demand for Russian energy products had increased.
Meanwhile, Kremlin aide Kirill Dmitriev gloated in a series of posts on X that “the oil shock tsunami is just beginning,” criticizing Europe’s decision to cut itself off from Russian energy as “a strategic mistake.”
On Monday, pro-Kremlin commentators circulated a Wall Street Journal article predicting oil prices could skyrocket to $215.
Long game
Energy experts warn it is too soon for Moscow to claim victory.
Whether the Iran crisis proves a cure for Russia’s economy depends directly on how long it lasts.
Milov, the former deputy energy minister, said that, to make a meaningful difference for the economy, Russia would need oil prices to remain at current levels for roughly a year. “One or two months of high prices would certainly help, but it won’t save it,” he said.
A brief spike in prices will only “help to postpone the difficult decisions,” added Vakulenko, the analyst at the Carnegie Russia Eurasia Center.
There’s another reason why Moscow will be hoping the war drags on: With every day of fighting, the U.S. is depleting the weapon stocks Ukraine is relying upon to defend itself.
According to media reports, Russia has been providing Iran with intelligence to help it target U.S. warships and aircraft.
The assassination of Iran’s leader Ali Khamenei in a U.S.-Israeli airstrike may have dealt a blow to Russia’s promise to defend its allies, but Putin may ultimately decide it was a price worth paying.