Is Russia becoming the biggest winner of the war in the Middle East?

U.S. approach towards Russia

Secretary of Treasury argued thatthis narrowly targeted, short-term measure applies only to oil already in transit and will not yield significant financial benefits for the Russian government, which derives most of its energy revenue from taxes levied at the point of production.

In October, the United States imposed sanctions on Rosneft and Lukoil – two Russian oil producers – which forced Moscow to sell oil to alternative buyers at an average price of 30 USD per barrel, while millions of them remained stuck on tankers.  As a result, Russia both earned less from production and had to intensify efforts to redirect its exports.

Moreover Washington took decisive steps toward states purchasing Russian oil – in August imposed 50% tariffs on Indian import. Consequently part of the sanctioned oil remained stuck off the Indian coast while traders was looking for buyers. However, this did not last long, as shortly before the escalation of the conflict in the Middle East, New Delhi received a 30-day waiver from the United States to purchase Russian oil stranded at sea.

Certainly, last week’s decision should be seen as a risk to undermining the sanctions regime of the past four years, which was designed to limit Russia’s ability to finance its war machine in Ukraine. Even though current sanctions regime has not conclude to the end of the war, but certainly led to a decline in budget revenues from this sector – according to February data, by roughly 40% year‑on‑year.

U.S. approach brought positive feedback amid Russian political elite. Kirill Dmitriev said that this move is evidence thatRussia was integral to the stability of the global energy market and that the further loosening of sanctions was „inevitable”.

Impact on the global oil market

According to Reuters, oil prices in Asia fell following the U.S. decision, while prices in the United States continue to rise. WTI crude costs around $97 per barrel, while Brent crude approximately $102 per barrel. Nevertheless, Russia benefited from the announcement, as Urals crude climbed sharply, reaching prices above $90 per barrel in some market. Taking everything into consideration, Moscow has been earning an estimated 150 million dollars per day in additional oil revenue.

This decision led to differing attitudes among European leaders. Friedrich Merz stated that lifting sanctions would be inappropriate, while Emmanuel Macron emphasized that the current situation does not justify easing sanctions and that G7 countries remain committed to maintaining them. The chief of the European diplomacy Kaja Kallas said that U.S. approachsets a dangerous precedent, because right now we need Russia to have less money to wage war, not more.

It is worth noting that in 2022 European Union imposed the price cap on the Russian oil, which forced Moscow to intensify the export to India and China and expand the use of the shadow fleet.

Are current international conflicts played out on stock exchanges rather than on the battlefield?

The greatest risk lies in the fact that there is no real prospect for an end to the war in the Middle East – a development that certainly benefits Moscow. Current crisis during the oil prices increased from 55 $ to 120 $ per barrel at highest peak, deteriorate the situation on the global oil market influencing on decreasing of supply. To address this the International Energy Agency has released 400 million barrels of oil from strategic reserves, equivalent to 26 days of shipments through the Strait of Hormuz.

Very possible that any further course of the war will depend on what happens in the oil market. Undoubtedly these circumstances play a significant role, especially  in Trump’s statements, who in recent weeks mentioned about the likely end of the war which caused oil prices to fall.

In addition, Russian-American talks are ongoing, with discussions including the possibility of economic cooperation, although for the time being most trade remains restricted under the current sanctions regime. When everything will be taken into consideration we see signs of a thaw in relations with Russia, with the aim of laying the groundwork for a return to economic cooperation.