In the feed, I encounter two extreme assessments of the consequences of the war against Iran for Ukraine.
Many point out the obvious. Russian oil has emerged from under the rug, trading at $70 a barrel and still rising. Fuel prices have soared, as has demand for ballistic missile defense. Moreover, the focus has shifted from the “usual” Ukraine to the “new” war.
It must be acknowledged that there is also the other side. Some say that to cover the budget deficit, Russia needs oil at more than $90, not $70. Iran’s ability to terrorize everyone with missiles and drones has quickly declined — the US and Israel dominate its airspace and shoot down anything that remotely resembles launch sites, warehouses, or factories. Completely blocking the Strait of Hormuz didn’t work — it’s more about the carriers’ caution now than a real risk…
Everyone agrees that the sooner the war in Iran ends, the less damage to our interests.
And to make the wait easier, let’s note that the rise in oil prices doesn’t save Russia from systemic problems. The increase in global oil prices won’t save the Russian budget.
Despite the rise in global Brent oil prices to $83 a barrel due to escalation in Iran, the Russian state budget remains critically dependent on the resource deficit caused by abnormal war expenses in Ukraine.
The current financial model of the Russian Federation provides for a maximum deficit of 3.8 trillion rubles, assuming an average annual price for Urals oil not lower than $59, while achieving breakeven is only possible at a price of $97 per barrel.
An additional destabilizing factor for the budget revenues is the currency rate discrepancy, as the actual price per barrel in rubles in February turned out to be a third lower than the predicted 5,440 rubles.
Russia’s oil and gas revenues show a stable negative trend, limiting the Kremlin’s ability to fund budget commitments and undermining the long-term sustainability of the economy under external pressure.
Ultimately, despite the rise in global prices after the escalation around Iran, buyers continue to demand significant discounts on Russian raw materials.
According to Argus Media, the discount on Russian Urals in western ports exceeded $30 per barrel and is about $30.9 compared to benchmark Brent oil. By comparison, in mid-February, the discount was approximately $28.6 per barrel.
Thus, Brent prices rose more than 11% to $80.65 per barrel during Wednesday’s day trading. At the peak, the quotes rose to $84.39 per barrel. At the same time, even against the backdrop of rising global prices, Russian oil is traded with an increasing discount.
This indicates continued elevated risks for buyers of Russian raw materials and limited demand for it in the international market.
Therefore, we should not succumb to either despair or complacency.
We have our work to do. Demand an adequate response from the authorities:
– on the cartel agreement in the fuel market;
– on the need to protect communities before the spring escalation of Russian attacks;
– on closing the gap in financing the Armed Forces;
– on strengthening air defense;
– on ending childish diplomatic offenses and moving to mature use of opportunities.
Because, it seems, incompetence and corruption in the government inflict more damage on Ukraine than the echoes of the war in Iran.
Collage on the cover generated by AI/Michael Keen, Linkedin
