The Energy Crisis Stemming from the US-Iran Military Conflict Significantly Boosted Russian Budget Revenues from Oil and Gas. Thus, a Quick Peace and the Reopening of the Strait of Hormuz is Not the Best Option for Russia. Neither is a Scenario Where War Breaks Out Anew. What End to the Middle Eastern Crisis is More Beneficial to Russia?
At the end of 2025 and the beginning of 2026, the Russian budget faced declining oil prices. In January and February, Urals traded at $41 and $45 per barrel, substantially lower than the budgeted price of $59 per barrel. This was a catastrophic beginning to the year and created serious risks for increased budget deficits in 2026.
However, the situation became significantly easier due to the Middle Eastern conflict. By March, the tax price of Urals rose to $77 from $45 in February, and in April, it reached $95. In May, it may rise even higher. As a result, oil and gas revenues increased by nearly 240 billion rubles in April compared to March.
Nonetheless, it is still too early for the Ministry of Finance to relax, as there are indications that US sanctions may be repeated this year. Additionally, oil and gas revenues are lower compared to last year. Russia needs oil prices at $95 not just in April, but for the entire year, which heavily depends on the resolution of the Middle Eastern conflict. The US and Iran are attempting to negotiate.
What scenario for peaceful resolution would be most advantageous for Russia in terms of oil prices and budget revenues?
There are four potential outcomes for the conflict: a rapid peace agreement and the opening of the Strait of Hormuz; protracted negotiations; escalation of the military conflict with further destruction of infrastructure; and a drawn-out crisis leading to a collapse in consumption.
The first scenario involves a swift temporary agreement between the US and Iran, a ceasefire, and the gradual reopening of the Strait of Hormuz by May–June. This could be a temporary arrangement rather than a substantial eventual peace. On these expectations, Brent prices have already fallen below $100 per barrel, and a real agreement could see it drop to $80-90, says Vladimir Chernov, an analyst at Freedom Finance Global.
However, he does not anticipate Urals falling back 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, this will lead to a gradual decline in oil prices to around $70 per barrel. However, lower prices will only be achieved in the following year when the effects of the conflict are fully mitigated, including the resumption of oil production from idle wells,” says Sergey Tereshkin, CEO of Open Oil Market.
The second scenario entails lengthy negotiations and partial reopening of the strait: formally, shipping will begin to resume, but insurance, inspections, military risks, and queues will remain.
“In the case of prolonged negotiations, oil may hover around $95–115 per barrel Brent. This is the most comfortable scenario for Russia in financial terms, as Urals prices in such a market could remain significantly above the budgeted $59 per barrel,”
– says Chernov.
The third scenario involves renewed military escalation, strikes on infrastructure, stalled negotiations, and the continued effective blockade of the Strait of Hormuz. In this case, oil prices could quickly rise above $110–120 per barrel, gas prices in Europe and Asia would remain high, and the market for petroleum products would become even more constrained, says Chernov.
The problem here is that the third scenario risks evolving into the fourth—a prolonged conflict where energy resources become so expensive that a global economic downturn and sharp price drops occur.
“Escalation of military conflict and destruction of additional energy assets in the Middle Eastern region could drive prices to extreme levels—both for oil and gas. If prices become excessively high, this will lead to a decline in global consumption, making market recovery difficult and prolonged. This scenario is also detrimental to us, as our markets will shrink,” explains Igor Yushkov, an expert from the National Energy Security Fund and the Financial University under the Government of the Russian Federation.
Maintaining current prices of $100-110 per barrel (high but not extreme) would be the best option, as it would not reduce demand in our markets, he adds. “The longer the Strait of Hormuz remains closed, the better for Russia; the more we can earn. Maintaining the status quo is in our best interest,” he concludes.
Another risk is posed by the UAE, which has announced its exit from OPEC. If they can ramp up production by the time the Strait of Hormuz opens, prices will drop, and the question of how low they will fall remains open, speculates Yushkov. If other OPEC member countries follow the UAE's example and wish to exit the OPEC+ deal, this could severely impact prices further. “Right now, everyone remains silent because there is no point in leaving the deal—they are still limited in oil exports. However, with the opening of Hormuz, their position could change. Russia cannot quickly increase production like the Middle Eastern countries, so we might just face low prices with current production levels,” Yushkov explains.
The gas market and related products show a better situation because, unlike oil, there are no stocks of natural gas. “When the Strait of Hormuz was closed, oil producers continued to produce large amounts and stored oil in tanks. But this wasn't the case with gas; Qatar had to halt production due to strikes on infrastructure. Therefore, a certain level of shortage in gas and related products (methane, helium) may persist, keeping prices elevated,” says Yushkov.
For oil, a restraining factor on price declines will be the need to replenish strategic reserves that have been depleted, the expert notes. “However, if OPEC+ collapses and everyone maximizes their production, even this factor won't be able to hold prices; they will still drop significantly for some period—perhaps for several months—until the market rebalances through reduced output from certain players,” Yushkov explains.
Even under the best-case scenario (the second scenario), maintaining high but not excessively high oil prices will make fulfilling the budget a challenging task. Chernov estimates that during the first four months of the year, oil and gas revenues totaled approximately 2.3 trillion rubles against an annual target of about 8.92 trillion rubles. Thus, in the remaining months of the year, around 6.6 trillion rubles need to 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 stay around 0.9–1 trillion rubles, the annual target for oil and gas could not only be met but possibly exceeded by approximately 0.3–1.4 trillion rubles. Conversely, if oil prices quickly decline and monthly revenues revert to 700–750 billion rubles, the plan will come under pressure again,” estimates Vladimir Chernov.
“Expensive oil is quite beneficial, but the budget problem has not been resolved. From January to March, the federal budget deficit already amounted to 4.576 trillion rubles, or 1.9% of GDP. This is above the annual plan.
The scenario of Urals returning to $41 this year currently appears unlikely. However, it is impossible to definitively rule out such a level, as the oil market is currently too volatile,” adds the expert.
He anticipates that if Urals remains above $70–75 per barrel, the budget will navigate the year much more smoothly, and if the average price hovers around $85–95, oil and gas revenues will significantly mitigate the risk of a severe budget deficit. However, this will not completely solve the deficit issue due to increased military expenditures, a strong ruble, and dampening payments to oil producers, concludes the expert.
Source: Vedomosti
