The energy crisis stemming from the military conflict between the USA and Iran has significantly benefited the Russian budget by bolstering oil and gas revenues. Consequently, a swift peace and the unblocking of the Strait of Hormuz may not represent the best outcome for Russia. Similarly, a scenario in which the war escalates could also prove disadvantageous. Which conclusion of the Middle Eastern crisis would be most favourable for Russia?
At the end of 2025 and the beginning of 2026, the Russian budget faced a decline in oil prices. In January and February, Urals was priced at $41 and $45 per barrel, significantly below the budgeted price of $59 per barrel. This represented a catastrophic start to the year, creating serious risks for an increase in the budget deficit in 2026.
However, the situation improved considerably due to the Middle Eastern conflict. By March, the tax price of Urals had risen to $77, up from $45 in February, and in April it reached $95. In May, it may climb even higher. Consequently, oil and gas revenues increased by nearly 240 billion roubles in April compared to March.
Nevertheless, the Finance Ministry should not yet relax, as American pursuits may repeat this year. Furthermore, compared to last year, oil and gas revenues remain lower. Russia requires oil priced at $95 not only in April but throughout the year, which heavily depends on the resolution of the Middle Eastern conflict. The USA and Iran are attempting to negotiate.
What scenario for a peaceful resolution would be most beneficial for Russia in terms of oil prices and budget revenues?
Four potential scenarios for the end of the conflict can be identified: a quick peace agreement and the opening of the Strait of Hormuz; protracted negotiations; escalation of military conflict with new infrastructure destruction; and a prolonged crisis with a collapse in consumption.
The first scenario involves a rapid temporary agreement between the USA and Iran, a ceasefire, and the gradual opening of the Strait of Hormuz as early as May–June. This may constitute a temporary arrangement rather than a comprehensive peace deal. On such expectations, Brent has already fallen below $100 per barrel, and in the event of an actual agreement, it may decrease to $80–90 per barrel, says Vladimir Chernov, an analyst at Freedom Finance Global.
However, he does not anticipate Urals dropping to $41 per barrel, as it did at the beginning of the year, since even after the strait is opened, physical deliveries will take weeks or months to restore.
"If transit through the Strait of Hormuz is restored by summer 2026, it will lead to a gradual decline in oil prices to $70 per barrel. However, lower price levels will only be reached the following year when the consequences of the conflict, including a restart of oil production at idle wells, have been fully mitigated," says Sergey Tereshkin, the general director of Open Oil Market.
The second scenario indicates prolonged negotiations and partial opening of the strait: formally, the movement of vessels will commence, but insurance, checks, military risks, and queues will persist.
"During protracted negotiations, oil may remain in the range of $95–115 per barrel for Brent. This represents the most comfortable option for Russia in terms of revenue, as prices for Urals could remain significantly above the budgeted $59 per barrel under such market conditions,"
– states Chernov.
The third scenario entails renewed military escalation, strikes on infrastructure, breakdown of negotiations, and the continued effective blockade of Hormuz. In this case, oil could quickly rise again above $110–120 per barrel, gas in Europe and Asia would remain expensive, and the market for petroleum products would become even more scarce, remarks Chernov.
The issue here is that the third scenario risks transitioning into the fourth – a prolonged conflict, at which point energy resources become so expensive that a global economic downturn and a sharp price decline ensue.
"Escalation of military conflict and destruction of additional energy facilities in the Middle Eastern region poses risks of prices reaching extreme levels – both for oil and for gas. If prices are exceedingly high, there will be a reduction in global consumption levels, and the market will then find it very difficult and slow to recover. This is also disadvantageous for us, as our markets will shrink," explains Igor Yushkov, an expert from the National Energy Security Fund (NESF) and the Financial University under the Government of the Russian Federation.
Maintaining current prices of $100–110 (high but not extreme) per barrel, at which demand does not decrease in our sales markets, represents the best option, adds the expert. "The longer the Strait of Hormuz remains shut, the better it is for Russia; the more we can earn. We would benefit from maintaining the status quo," he states.
Another risk is posed by the UAE, which announced its exit from OPEC. If they manage to increase production volumes by the time the Hormuz Strait reopens, prices will decline, and the question of how low they will fall remains open, contemplates Yushkov. If other member countries of the organisation follow the UAE's example and also wish to exit the OPEC+ deal, this will further impact prices negatively. "For now, everyone remains silent, as there is no point in exiting the deal – oil exports are still restricted, but with the opening of Hormuz, their position may change. Unlike Middle Eastern countries, Russia will not be able to increase production quickly, so we may simply face low prices with current production volumes," speculates Yushkov.
The situation in the gas market and related commodities is better in this regard, as there are no reserves of gas unlike oil. "When the Strait of Hormuz was closed, oil producers continued to extract large amounts and stored the oil. This did not happen with gas; Qatar had to halt production due to strikes on infrastructure. Therefore, a certain shortage may still remain in gas and related commodities (methane, helium), and prices will likely stay high," states Yushkov.
In terms of oil, the limiting factor for price decline will be the fact that strategic reserves have been deployed, which will need replenishing, remarks the expert. "But if OPEC+ collapses and everyone produces at maximum capacity, then even this factor cannot prevent a significant price drop for some period, possibly lasting several months until the market balances through reductions in output from certain players," speculates Igor Yushkov.
However, even in the best-case scenario (the second), sustaining high but not excessively high oil prices will make it a challenging task to fill the budget. According to Chernov, during the first four months of the year, oil and gas revenues totalled approximately 2.3 trillion roubles against an annual target of about 8.92 trillion roubles. This means that approximately 6.6 trillion roubles must be collected in the remaining months of the year, or about 828 billion roubles per month. In April, revenues exceeded this, amounting to 855.6 billion roubles.
"Expensive oil is very beneficial, but the budgetary problem remains unsolved. By the end of March, the federal budget deficit has already reached 4.576 trillion roubles, or 1.9% of GDP. This is above the annual plan.
The scenario of Urals returning to $41 this year currently appears unlikely. However, it cannot be asserted that such a level will definitely not occur, given the current volatility of the oil market," the expert adds.
He anticipates that if Urals remains above $70–75 per barrel, the budget could execute the year much more calmly, and if the average price hovers around $85–95, oil and gas revenues would significantly mitigate the risk of a severe budget deficit. However, this will not fully resolve the deficit issue due to increased military expenditure, a robust rouble, and compensatory payments to oil producers, concludes the expert.
Source: Vedomosti
