The U.S. war on Iran set up Russia’s economy for a major rescue after oil prices soared after the closure of the Strait of Hormuz. But if President Vladimir Putin was expecting a huge windfall, that view may literally be going up in smoke.
With one-fifth of the world’s oil supplies cut off, Russian oil suddenly became much more valuable. After trading at a steep discount to Brent crude, Urals oil nearly reached parity with the global benchmark.
The U.S. also temporarily lifted sanctions on Russian crude, despite warnings that the move would provide a vital influx of revenue to the cash-strapped Kremlin.
Just before President Donald Trump’s war on Iran, Russia’s oil and gas revenue had collapsed by 50%, and the government was draining its reserves to help pay for its war on Ukraine, now entering its fifth year, as budget deficits widened.
Of course, removing more Russian supplies from the global oil market could lift prices even higher, and Russia can still export crude from its eastern terminals that serve Asia.
But Ukraine’s drone attacks are also forcing Moscow to deprioritize some exports and protect consumers, who have been battered by high inflation. A strike early Saturday hit a large Russian oil refinery in Yaroslavl, north east of Moscow.
Now the Kremlin is planning to reintroduce a ban on gasoline exports to combat domestic fuel shortages as producers would be barred from exporting gasoline to earn bigger profits. The Russian newspaper Kommersant cited “unscheduled refinery maintenance” and fires at Primorsk and Ust-Luga.
They pointed to weak oil revenue and a budget deficit that continues to widen, even after Putin hiked taxes on consumers. A Moscow business executive also told the Post that the crisis could arrive in “three or four months” amid spiraling inflation, adding that restaurants have been closing, and thousands of workers are getting laid off.
The economic strains go back to Russia’s invasion of Ukraine. As sanctions took hold and Putin mobilized the economy for a prolonged war, a tight labor market and high inflation forced the central bank to keep interest rates high. Recent easing failed to prevent spending declines in several consumer categories.
“A banking crisis is possible,” a Russian official told the Post in December on condition of anonymity. “A nonpayments crisis is possible. I don’t want to think about a continuation of the war or an escalation.”
