After almost two weeks, the Iran war already has a great (and unexpected) beneficiary: the Kremlin. days after giving carte blanche to India to buy million barrels of Russian crude without fear of sanctions, yesterday Washington was one step further by lifting (partially) the sanctions imposed on the Russian oil industry after the invasion of Ukraine. With this, he hopes to alleviate the effects of the Iran war on the energy market and prevent Tehran’s threat from becoming a reality: that the barrel of Brent shoots to $200an all-time high.
The question is… What will it mean for the war in Ukraine?
What has happened? That the US has decided to pause the sanctions that penalize the purchase of Russian oil, a measure adopted four years ago and which seeks asphyxiate the Kremlin’s ability to finance its troops in Ukraine.
The White House just published an order in which it gives the green light to the purchase of crude oil and oil products from Russia. Of course, with small print. The suspension of sanctions is temporary. It will only affect merchandise previously loaded on ships and (a priori) will be limited to one month: from March 12 to April 11.
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Why do you do it? The task of announcing the measure has been the Secretary of the Treasury, Scott Bressent, who a few hours ago insisted in the White House’s efforts to “promote stability” in the global energy market and above all “keep prices low” while the Iran war lasts. “To expand global supply reach, Treasury grants temporary authorization for countries to purchase Russian oil stranded at sea,” explains the high office.
“This measure, which is limited in scope and short-term, applies only to oil that is already in transit.” In the same messageBressent insists that the rise in crude oil prices this week, coinciding with the escalation of tension in the Persian Gulf, is “temporary” and claims that “in the long term it will greatly benefit” the US economy.
In recent days, Trump himself has tried to downplay the fluctuations in the Brent barrel. Recently he even stated that, being “the largest oil producer”, the US makes “a lot of money” when crude oil rises.
Does context matter? A lot. In fact, the decision of the Treasury Department cannot be understood without taking into account several factors. The first, the escalation in the value of oil to which Bressent himself refers.
The stock charts show that the cost of a barrel of Brent has skyrocketed in recent days: from marking just under 70 dollars in mid-February, it has gone above 90, with peaks that exceeded the barrier of the 100. Those fluctuations already affect to those who need to fill the car tank and threaten to go beyond transportation, infecting the shopping basket.
What will happen now? The problem is not just how much oil has risen over the last two weeks. There is (very much) concern that the barrel of Brent will continue to become more expensive and, if so, by how much. The Iranian regime already has shown its ability to condition oil tanker traffic through the Strait of Hormuz, a strategic maritime passage that channels 20% of international oil, and Tehran seems willing to use ‘black gold’ as a weapon of war.
On Wednesday the regime of the ayatollahs threatened to the US (and the West) with a scenario in which the Brent barrel doubles its value and shoots up to $200, shattering the all-time high of 2008, when it reached $174.5.
How will it affect Russia? That’s the other big question. The order just published by the US Treasury will allow Russia to market oil for a month without its customers risking sanctions, generating a flow of cash for the Kremlin. Bressent questions in any case the scope of that injection of funds. “It will not bring significant financial benefits to the Russian government, which derives most of its energy revenue from taxes levied at the point of extraction,” defend the secretary.
Is it an exceptional measure? The truth is that it is not the first ‘balloon of oxygen’ that Trump has granted to the Russian oil industry since he began his military operation in Iran. It’s been a week now temporarily relaxed its sanctions policy so that India can buy Russian oil.
The measure was approved with conditions very similar to those that Washington now extends to the rest of the countries: a 30-day suspension limited to crude oil already loaded on ships. It is not the only card that the White House has tried to reduce market tension. Another, adopted hand in hand of the International Energy Agency, has been to release millions of barrels of reserves.
How much will it benefit Moscow? The great unknown. The measure approved by the US is temporary and has a limited scope, but it will probably allow the Kremlin to sell its oil without having to apply significant discounts to offset the possible sanctions that its buyers faced.
Recently Financial Times I calculated that Russia is already winning up to 150 million of dollars in extra income every day through the sale of oil, a plus directly related to the conflict in Iran, the closure of the Strait of Hormuz, the turbulence in the Gulf and the growing interest of India and China.
But will it help the Kremlin? The situation of the Russian coffers is not particularly buoyant. Its public deficit accumulated during the first two months of the year almost reaches the objective set for the entire year and there are those who question that the extra injection it will receive over the next month thanks to oil will increase its room for maneuver in Ukraine.
The reason: hydrocarbons represent only a part of the income (relevant, but not decisive) on which the Kremlin depends, which after four years of war has seen how the country’s military industry is conditioning its economy.
Images | Wikipedia, Natalya Letunova (Unsplash)
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