The Energy Crisis Due to the U.S.-Iran Military Conflict Has Significantly Boosted Russia's Budget Revenue from Oil and Gas. Therefore, a Quick Peace and the Unblocking of the Strait of Hormuz Is Not the Best Option for Russia, Just Like a Scenario Where the War Intensifies Again. Which Outcome of the Middle Eastern Crisis Is More Advantageous for Russia?
By the end of 2025 and early 2026, the Russian budget was facing a decline in oil prices. In January and February, Urals oil was priced at $41 and $45 per barrel, significantly below the budgeted price of $59 per barrel. This was a catastrophic start to the year and created serious risks for a growing budget deficit in 2026.
However, the situation improved significantly due to the Middle Eastern conflict. By March, the tax price of Urals rose to $77 compared to $45 in February, and in April, it reached $95. It might even be higher in May. As a result, budget revenue from oil and gas increased by nearly 240 billion rubles in April compared to March.
Nevertheless, it is still too early for the Ministry of Finance to relax, as American market fluctuations could repeat this year. Furthermore, compared to last year, oil and gas revenue is lower. Russia needs oil prices at $95 not just in April, but for the entire year. This heavily depends on how the Middle Eastern conflict will be resolved. The U.S. and Iran are attempting to negotiate.
Which scenario for a peaceful resolution is the most advantageous for Russia in terms of oil prices and budget revenue?
Four potential scenarios for the end of the conflict can be identified: a rapid peace agreement and the opening of the Strait of Hormuz; prolonged negotiations; escalation of the military conflict with new infrastructure destruction; an extended crisis with a collapse in consumption.
The first scenario involves a quick temporary agreement between the U.S. 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. On these expectations, Brent prices already fell below $100 per barrel, and in the event of a genuine agreement, could drop to $80-90, says Vladimir Chernova, an analyst at Freedom Finance Global.
However, he does not anticipate a drop in the Russian Urals price to $41 per barrel, as was the case at the beginning of the year, because even after the strait reopens, physical deliveries will resume over weeks or months.
"If transit through the Strait of Hormuz is restored by summer 2026, this will lead to a gradual decline in oil prices to $70 per barrel. However, lower price levels will only be reached next year, once the consequences of the conflict, including the restart of oil production in idle wells, are completely addressed," says Sergey Tereshkin, General Director of Open Oil Market.
The second scenario involves prolonged negotiations and a partial opening of the strait: formally, ship movements will begin to resume, but insurance, inspections, military risks, and delays will remain.
"In the case of extended negotiations, oil could remain in the range of $95–115 per barrel for Brent. For Russia, this is the most comfortable option in terms of revenue, as Urals prices could remain significantly above the budgeted $59 per barrel,"
– says Chernova.
The third scenario involves a renewed military escalation, strikes on infrastructure, breakdown of negotiations, and continued effective blockade of Hormuz. In this case, oil could quickly rise above $110–120 per barrel, gas prices in Europe and Asia will remain high, and the market for petroleum products will be even more constrained, warns Chernova.
The issue here is that the third scenario risks transitioning into the fourth – a protracted conflict, where energy resources become so expensive that a global economic downturn occurs, leading to a sharp price decline.
"Escalation of military conflict and destruction of additional energy facilities in the Middle Eastern region are dangerous due to prices rising to unsustainable levels – for both oil and gas. If prices become extremely high, this will lead to a decrease in global consumption, and the market will take a long time to recover. This is also disadvantageous for us, as our sales 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 per barrel (high but not extreme) is the best scenario, as it allows for continued demand in our sales markets, he adds. "The longer the Strait of Hormuz remains closed, the better for Russia, the more we get to earn. Maintaining the status quo is beneficial to us," he states.
Another risk stems from the UAE, which announced its exit from OPEC. If they manage to increase production by the time Hormuz opens, prices will drop, and the question of how low they will go remains open, Yushkov notes. Should other member countries of the organization follow the UAE's example and also wish to exit the OPEC+ deal, this would further impact prices. "For now, everyone is silent because there’s no point in exiting the deal – oil exports are still limited, but with the opening of Hormuz, their position may change. Russia cannot quickly increase production like the Middle Eastern countries, so we could simply end up with low prices given current production volumes," Yushkov elaborates.
The situation in the gas market and related products is comparatively better because, unlike oil, there are no reserves for gas. "When the Strait of Hormuz was blocked, oil producers continued to produce a lot and pumped the oil into storage. With gas, this did not happen; Qatar had to halt production due to strikes on infrastructure. Thus, some degree of shortage may persist in gas and related products (methane, helium), keeping prices elevated," notes Yushkov.
For oil, a limiting factor for price drop will be the strategic reserves that have been released, which will need to be replenished, according to the expert. "However, if OPEC+ collapses and everyone produces at maximum capacity, even this factor will not be able to hold prices, and they will drop significantly for a period, perhaps for several months, until the market rebalances through someone reducing production," Yushkov argues.
But even under the best-case scenario (the second) – maintaining high, but not extremely high oil prices – filling the budget will be a challenging task. According to Chernova, in the first four months of the year, oil and gas revenue amounted to approximately 2.3 trillion rubles against an annual plan of about 8.92 trillion rubles. This means that for the remaining months of the year, approximately 6.6 trillion rubles must be collected, or about 828 billion rubles per month. In April, more was collected – 855.6 billion rubles.
"If prices remain high and monthly revenues are around 0.9-1 trillion rubles, the annual plan for oil and gas can not only be met but also exceed by approximately 0.3-1.4 trillion rubles. However, if oil prices drop quickly and monthly revenues revert to 700-750 billion rubles, the plan will come under pressure again," Chernova estimates.
"Expensive oil helps considerably, but the budgetary issue remains unresolved. For the first quarter, the federal budget deficit already amounted to 4.576 trillion rubles, or 1.9% of GDP, which is above the annual plan.
The scenario of Urals returning to $41 this year now seems unlikely. However, it cannot be stated definitively that such a level will not occur, as the oil market is currently too volatile," the expert adds.
He expects that if Urals holds at least above $70-75 per barrel, the budget will navigate through the year significantly more smoothly, and if the average price is closer to $85-95, oil and gas revenues will greatly reduce the risk of a severe budget deficit. However, this won't completely resolve the deficit issue due to increased military spending, a strong ruble, and damping payments to oil producers, the expert concludes.
Source: Vedomosti
