In a war increasingly determined by the flow and price of oil, one country is already emerging as a winner – and it’s not even a combatant.
As US-Israeli strikes on Iran have sent the oil price soaring and raised questions about the American appetite for a prolonged price shock, Russia is already reaping the benefits of higher oil revenues.
The transformation in Russian fortunes, literal and metaphoric, has been dramatic. Just a fortnight ago, Vladimir Putin was under increasing pressure as sanctions tightened.
Today, with plentiful supplies of crude oil unconstrained by the effective closure of the Strait of Hormuz, Russia is cashing in.
Not only has the price of Urals crude soared, but the discount Russia was forced to offer as a consequence of sanctions has been erased, delivering a windfall to the Kremlin and its campaign against Ukraine.
Russian oil revenues fell 18% last year, according to the Centre for Research & Clean Air (CREA), and appeared to be declining further in January, placing genuine pressure on the Russian economy.
At a stroke, the attacks on Iran have eased the pressure, with revenues increasing 17% in the last two weeks and exports from northern Russian ports up 24%.
The change in fortune can be illustrated by the passage of a single vessel in the Russian shadow fleet.
In February, Sky News intercepted the Kousai, a Sierra Leone-flagged tanker, as it passed through the Strait of Dover.
With a capacity of around 750,000 barrels, its cargo was worth around $40m when it was loaded with crude at Ust-Luga in the Baltic on 2 February.
By the time it passed Dover, eight days later, it was potentially worth $42m, as Urals crude traded at $56 a barrel, $13 below Brent crude.
Nine days into the Iranian war, Urals reached a peak of more than $100 a barrel, so as the Kousai passed Sri Lanka en route to India on 9 March, its cargo was worth $75m. On Thursday morning, as it approached Paradip, it was back to $65m, reflecting a barrel price of $87.
Events of the last fortnight have alleviated pressure that has been building since the invasion of Ukraine to curb Russian oil revenue.
Sanctions from the UK, EU, Australia, Canada and the US have targeted thousands of Russian individuals and companies, and hundreds of tankers in the so-called “shadow fleet” it relies on to move crude around the world.
A lift from sanctions
With Western nations closed for business, India and China became the biggest customers for Russian crude, but US sanctions against New Delhi introduced in February appeared to have delivered a serious blow.
Last week, however, the US offered India a 30-day waiver to those restrictions, a tacit acknowledgement that, with 20% of global supply choked off by the closure of the Strait of Hormuz, Indian demand could further push up prices.
Russia is also benefiting from the interruption of supply to China, which sources close to half of its oil imports from Gulf states, currently unable to send tankers through the Gulf.
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“The spike in energy prices triggered by the closure of the Strait of Hormuz is boosting the Kremlin’s oil and gas revenues, helping fund its war chest. In effect, geopolitical turmoil and policy loopholes are handing Russia a windfall just as sanctions were beginning to bite,” said Isaac Levy of CREA.
“The US waiver allowing India to keep buying Russian oil from sanctioned companies will blunt the impact of sanctions. Discounts on Russian crude have almost vanished, and tankers that were idling are now preparing to unload at Indian ports again.”
The longer the Iran conflict goes on, the more Russia is likely to profit.
