Iran conflict benefits Russia's "war machine" far beyond just oil gains

June 4, 2023, an oil pump jack on the outskirts of Almetyevsk in the Republic of Tatarstan, Russia.

Iran’s war has offered a desperately needed “lifeline” to a Russia economy that is struggling.

High oil prices are bolstering the Kremlin’s fiscal coffers, helping to fill a gap in the federal budget and sustaining its war efforts in Ukraine. But beyond oil, as a result of the Iran conflict, competition for global supplies of natural gas and fertilizer is also intensifying, which could further increase Russia’s fiscal gains.

Ben Cahill, senior fellow at the Center for Strategic and International Studies in Washington, said: “The biggest winner of the (Iran) conflict is Russia.” He added that the Kremlin can now sell previously discounted Russian crude oil “at full market price,” which is “a significant turning point” for its economy.

This unexpected windfall for Russia’s public finances could not have come at a better time. Alexandra Prokopenko, a researcher at the Carnegie Russia Eurasia Center in Berlin, told CNN that before the outbreak of the Iran war, “Russia was heading toward a real budget crisis.” Although the latest Middle East conflict has not fundamentally changed the economic outlook that has been structurally damaged by long-term war, it has given Russia “some breathing room.”

How long that breathing room can last depends on how long the Iran war drags on, but higher oil prices have already provided some relief. Prokopenko added that Russia’s Ministry of Finance has said that the spending cuts previously planned to be implemented this year will be pushed back to 2027.

Trump had wanted India to stop buying Russian oil, and the Iran war he launched is undermining that goal

Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center, said that as of mid-March, the price of Russian Urals crude had reached $90 per barrel, double that of February. In a report this Monday, he wrote that even a $30 per barrel increase at the start of March would mean an additional $8.5 billion in monthly revenue—“of which $5 billion goes to the treasury, with the rest going to oil companies.”

Simona Taliani Pietrapietra, a senior fellow at Bruegel in Brussels, said that oil and natural gas revenues account for about a quarter of Russia’s federal budget, making them a key source of funding for its “Ukraine war machine.” “That’s bad news for Ukraine.”

Dramatic reversal

Before the Iran war broke out, under stricter sanctions from the European Union and the United States, the pool of buyers for Russian oil kept shrinking, and clients also demanded large discounts. The White House also imposed penalties on India, one of the largest buyers of Russian crude in recent years.

This pressure worked for a time. Data from the International Energy Agency shows that in February, exports of Russian crude oil and petroleum products plunged to 6.6 million barrels per day, the lowest level since the invasion of Ukraine in 2022. In that month, export earnings fell by roughly 30% year over year.

After the Iran war broke out, the situation changed sharply, partly because the Trump administration’s stance on Russian oil took a clear turn. Earlier this month, the United States temporarily eased sanctions on Russian seaborne crude oil, “to ensure that oil continues to flow into global markets.”

March 11, 2026, the “Desert Kite” oil tanker carrying Russian oil docks near the Neralar Sea Ocean National Park on the Arabian Sea coast in Gujarat, India.

Kpler, a real-time data analytics provider, said that because Indian refineries are stepping up purchases to make up for a shortfall in Middle East oil supplies, Russia’s oil exports to India in March are expected to nearly double compared with February.

Citing the “pricing information” of AGGS, an energy commodities data agency, Kpler senior analyst Sumit Ritolya said that in recent days, the prices paid by Indian buyers for Urals crude have been higher than the global benchmark Brent crude.

The sharp rise in Urals oil prices will help offset disruptions to Russia’s oil exports caused by Ukrainian attacks on Russia’s energy infrastructure. Reuters reported on Wednesday, citing market data estimates, that after Ukraine launched drone strikes, a major pipeline was attacked, and oil tankers were seized, at least 40% of Russia’s oil export capacity fell into a standstill, though the claims are disputed.

Natural gas and fertilizer

The Middle East conflict may also bring the Kremlin other fiscal and strategic gains.

The Strait of Hormuz is not only crucial for oil, but also for the transportation of liquefied natural gas, fertilizer, helium, and aluminum—and Russia has large-scale production capacity for all of these commodities.

Prokopenko said that as the world’s second-largest fertilizer exporter, Russia has received “an increasing number” of orders, and importers in Nigeria and Ghana have already reserved the volume for this year’s third quarter.

She noted this week: “Once these cooperation relationships are established, dependency forms, and its duration could last longer than any ceasefire agreement.”

Russia is also the world’s second-largest natural gas producer, behind only the United States. There is already speculation that the EU may delay the timeline for phasing out Russian natural gas. Some Russian gas imports that were originally set to be banned starting next month—meanwhile, the final deadline for a complete stop in imports is currently set for November 2027.

November 30, 2021, the Utroennoye gas field in the Yamal Peninsula, Russia, which supplies gas to Novatek’s Arctic LNG 2 project.

Tatiana Mitrova, a researcher at Columbia University’s Center on Global Energy Policy, told CNN that this signals yet another potential strategic victory for Russia. She said that the United States easing sanctions on some Russian oil also carries symbolic significance, opening the door for the Kremlin and the United States to renegotiate in exchange for long-term concessions.

India and China reconsider Gulf imports

Vakulenko of the Carnegie Russia Eurasia Center believes that if India and China reduce their reliance on fossil fuels from the Middle East, they may increasingly turn to importing from Russia. This could support some large infrastructure projects and further boost Russia’s economy.

For example, China had previously been hesitant about a “Power of Siberia 2” natural gas pipeline project proposed to Russia. In a report this week, Vakulenko wrote that now Beijing may be more willing to move forward.

He wrote: “A secure overland natural gas transportation route, unaffected by a blockade of the Strait of Hormuz and maritime interdiction, has become far more attractive than it was half a year ago.”

A major expansion project of the Eastern Siberia—Pacific Ocean oil pipeline, with current annual throughput capacity of 1.6 million barrels, has suddenly become “highly feasible” for both Russia and China.

However, Asia’s renewed interest in Russia’s fossil fuels may not last. Mitrova of Columbia University believes that the energy shock triggered by the Iran war will prompt India and China to ramp up investment in domestic renewable energy and even coal-fired power generation. She said that these two of the world’s most populous economies “will do everything they can to reduce import dependence.”

The Iran war is driving up global shipping costs and commodity prices, and Russia is no exception. On Thursday, the OECD raised its forecast for Russia’s overall inflation this year—including food and energy prices—by one percentage point, to 6%.

The OECD expects Russia’s economic growth rate this year to be 0.6%, down from 1% in 2025. This downward revision indicates that short-term unexpected revenues are not a lasting solution for Russia’s economy. As the long-running war continues, the Kremlin’s economic difficulties keep worsening, government debt rises, and business investment suffers.

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Responsible editor: Guo Mingyu