The Energy Crisis Stemming from the US-Iran Military Conflict Has Significantly Benefited Russia's Budget Through Increased Oil and Gas Revenues. Therefore, a Quick Peace and the Unblocking of the Strait of Hormuz Is Not the Best Scenario for Russia, Just as a Renewed Escalation of War Is Not Ideal. What Outcome of the Middle Eastern Crisis Would Be Most Advantageous for Russia?
At the end of 2025 and early 2026, the Russian budget faced declining 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 was a disastrous start to the year and posed serious risks for a growing budget deficit in 2026.
However, the situation improved considerably due to the Middle Eastern conflict. By March, the tax price of Urals rose to $77, up from $45 in February, and to $95 in April. It may reach even higher levels in May. As a result, oil and gas revenues surged by almost 240 billion rubles in April compared to March.
Nonetheless, the Ministry of Finance must remain cautious as this year’s American dynamics may repeat. Moreover, current oil and gas revenues are down compared to last year. Russia requires an oil price of $95 not just in April, but throughout the entire year. This heavily depends on how the Middle Eastern conflict is resolved, with the US and Iran currently attempting to negotiate.
Which scenario for 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 reopening of the Strait of Hormuz; protracted negotiations; escalation of military conflict with renewed destruction of infrastructure; and an extended crisis leading to a collapse in consumption.
The first scenario entails a quick temporary agreement between the US and Iran, a ceasefire, and the gradual reopening of the Strait of Hormuz by May or June. This could be a temporary arrangement rather than a comprehensive peace settlement. On such expectations, Brent has already fallen below $100 per barrel and, in the event of a real agreement, could drop to $80–90, according to Vladimir Chernov, analyst at Freedom Finance Global.
However, he does not foresee the price of Russian Urals plummeting to $41 per barrel, as it did at the beginning of the year, because even after the reopening of the strait, physical deliveries will take weeks or months to resume.
“If transit through the Strait of Hormuz is restored by the summer of 2026, it will lead to a gradual decrease in oil prices to around $70 per barrel. But lower prices will only be reached in the following year when the effects of the conflict are fully neutralized, including the restart of oil production at idle wells,” believes Sergey Tereshkin, General Director of Open Oil Market.
The second scenario implies lengthy negotiations and partial opening of the strait: formal movement of vessels will begin to resume, but insurance, inspections, military risks, and queues will persist.
“In the case of prolonged negotiations, oil could remain in the $95–115 per barrel range for Brent. For Russia, this is the most comfortable scenario in terms of finances since under such market conditions, prices for Urals could remain significantly above the budgeted $59 per barrel,”
– states Chernov.
The third scenario involves renewed military escalation, attacks on infrastructure, stalled negotiations, and the continued effective blockade of Hormuz. In this case, oil prices could quickly rise back above $110–120 per barrel, with gas remaining expensive in Europe and Asia, and the market for oil products becoming even scarcer, according to Chernov.
The issue is that the third scenario risks transitioning into the fourth—an extended conflict in which energy resources become so costly that a global economic downturn begins, leading to a sharp price decline.
“The escalation of the military conflict and the destruction of additional energy facilities in the Middle Eastern region raise concerns about prices soaring to unprecedented levels—for both oil and gas. If prices reach extremely high levels, it will lead to a significant decrease in global consumption, and the market will recover very slowly and with difficulty. This scenario is also unfavorable for us, as our markets will shrink,” explains Igor Yushkov, an expert at the National Energy Security Fund (FNEB) and at the Financial University under the Government of the Russian Federation.
Maintaining current prices of $100–110 (high but not extreme) per barrel, at which there is no reduction in demand in our markets, is the best option, he adds. “The longer the Strait of Hormuz remains closed, the better it is for Russia, allowing us more time to earn revenue. We benefit from maintaining the status quo,” he asserts.
Another risk arises from the UAE, which has announced its exit from OPEC. If they manage to increase their output by the time Hormuz opens, prices are likely to decline, and the question of how far they will drop remains. If other member countries follow the UAE's example and also wish to exit the OPEC+ agreement, it will further pressure prices. “For now, everyone is silent because there is no point in exiting the deal—exports are still restricted. However, with the opening of Hormuz, their positions may change. Russia cannot rapidly increase production like the Middle Eastern countries, so we could end up with lower prices at current production levels,” reflects Yushkov.
In the gas market and related commodities, the situation is more favorable because, unlike oil, there are no stockpiles of gas. “When the Strait of Hormuz was closed, oil producers continued to pump a lot and stored oil in reserves. However, with gas, this did not happen; Qatar was forced to halt production due to infrastructure strikes. Consequently, a certain shortage of gas and related products (methane, helium) may persist, keeping prices high,” says Yushkov.
On the oil front, a limiting factor for price reduction will be the need to replenish strategic reserves that have been drawn upon, the expert notes. “However, if OPEC+ collapses and all countries maximize production, even this factor will not keep prices up, and they are likely to fall significantly for a certain period, potentially for several months, until the market rebalances due to cuts in production by some players,” Yushkov explains.
Yet, even under the best scenario (the second)—retaining high but not excessively high oil prices—the task of funding the budget will remain challenging. According to Chernov's calculations, in the first four months of the year, oil and gas revenues amounted to approximately 2.3 trillion rubles against an annual target of about 8.92 trillion rubles. This means that approximately 6.6 trillion rubles, or about 828 billion rubles per month, must be collected in the remaining months of the year. In April, more was received—855.6 billion rubles.
“If prices remain high and monthly revenues hover around 0.9–1 trillion rubles, not only can the annual budget target for oil and gas be met, but it may also exceed by approximately 0.3–1.4 trillion rubles. Conversely, if oil prices quickly decline and monthly revenues drop back to 700–750 billion rubles, the target will again be under pressure,” calculated Vladimir Chernov.
“High oil prices are a significant help, but the budgetary issue remains unresolved. In the first quarter of the year, the federal budget deficit has already reached 4.576 trillion rubles, or 1.9% of GDP. This is above the annual target.
The scenario of Urals returning to $41 this year now seems unlikely. However, it cannot be ruled out entirely, as the oil market is currently too volatile,” adds the expert.
He anticipates that if Urals holds above $70–75 per barrel, the budget will fare considerably better throughout the year, and if the average price nears $85–95, it will significantly reduce the risk of a severe budget deficit. Nonetheless, this will not completely resolve the deficit issue due to increased military expenditures, a strong ruble, and price dampening payments to oil companies, the expert concludes.
Source: Vedomosti
