Bubbly Times in the Kremlin: Israel's Ruckus in Iran Boosts Putin's War Chest
Iran-Israel Conflict Serves as a Respite for Putin's Challenges
By Hannes Vogel* ** (As a side note**, the ongoing chaos in the Middle East has some interesting implications for Russia's faltering war economy.)
At the G7 summit in Canada, Donald Trump dropped a bombshell: "Let's not forget that sanctions cost us a fortune," he said. "Sanctioning a country costs the US billions." So much for the major industrial nations' plans to cut off more fuel to Russia's war machine in Ukraine.
Truth be told, the EU countries, Britain, and Canada were mostly in agreement to lower the $60 price cap for selling Russian oil even further. The idea was to tighten the screws on ol' Putin and halt his aggression in Ukraine. But with oil prices having plummeted recently, Russia's coffers were already feeling the pinch.
Politics Price Drop and Putin's Budget Blues With OPEC+ at odds and Russia failing to adhere to the agreed production cuts to maintain high prices, it seemed like a perfect storm for pushing down prices. Except, then Israel decided to stir the pot.
ntv New Trend or Short-term Reaction Suddenly, the Middle East war had thrown a wrench in the works. Along with the nuclear deal, the proposed sanctions against Russia became diplomatic casualties of the Iran bombing campaign. And guess who's grinning from ear to ear? That's right - Vladimir Putin. Not only does it serve as a distraction from his own air force's daily terror attacks on Ukrainian cities, but it also pumps up oil prices, bolstering his war chest, and keeping those greenbacks rolling in. And it's not just Trump who's happy to see Putin flourishing.
Popping Champagne Corks
Up until the Israel-Iran conflict flared up, Trump had been less than enthusiastic about standing up to Putin. Sure, even Republicans in the US Congress were starting to get the hint and were preparing to lay down harsher sanctions. But then, all of a sudden, Washington had more pressing matters to attend to than the Kremlin's aggression in Ukraine. Funny how that works, isn't it?
Economy Brent soars: The Impact of the Iran Conflict on Oil Prices With the price cap, Moscow couldn't exactly trade its oil in the West if it cost more than $60. And, boy, was commerce sick of Putin's oil. But with Israel causing a ruckus in the Middle East, the cost of oil suddenly started to creep up, straining the price cap coalition. As Western shippers and insurers began to shy away from trading with Russia, the chances of artificial scarcity causing oil prices to soar grew. And Trump, my dear, loves that inflation.
Economy Heating Oil Prices Skyrocket: Getting Toasty in Germany With the price cap teetering, Moscow had no problem raking in the profits. In mere days, the price of Russian Ural oil soared by 15 percent. The "Moscow Times" reported on the kindness of fortune, citing a Russian investment company. The Kremlin, you see, is starving for these unexpected windfalls. Even the increased prices are still far from what Putin's finance ministry had planned for this year. According to the report, Russia's budget deficit would more than triple this year. In May, oil and gas revenues had plummeted by over half compared to the previous month.
A Cap That Leaks Like a Sieve
As it turns out, the price cap isn't doing much to stop Putin's oil business. It's leaky, ineffective, and doesn't put much of a dent in Putin's oil business. With a fleet of ancient, dilapidated tankers, the Kremlin has been dodging sanctions since day one by shuffling money through shell companies and mysterious middlemen.
Economy Price Cap: More Fool's Gold Than Bulwark Against Putin The price cap isn't a real embargo; it's nothing more than a weak compromise. It's supposed to prevent shippers from moving oil, traders from buying it, banks from financing or insuring deals, and Western countries from trading it if it goes above $60. The problem is that only a handful of countries are strictly enforcing the rules, and there are very few investigations or fines. And outside the West, it's as easy as pie to avoid the cap.
Can Europe Do It Alone?
With Trump bouncing out of the price cap coalition, the question lingers: will the Europeans dare to go it alone? Before the G7 summit, EU foreign policy chief Kaja Kallas emphasized that the EU could lower the price cap unilaterally if necessary. "If we and the rest of the G7 support a lower price and the Americans don't, that's still something we need to aim for," said EU sanctions chief David O'Sullivan. But with Trump gone, it seems like the collective spirit among EU countries might be waning. According to "Bloomberg," some are now hesitating to act alone without the US.
Putin's warlord will be pleased.
Sources: ntv.de
Vladimir Putin Russia Oil Price Middle East Conflict
- Increased Oil Prices: The ongoing escalation in the Middle East has a tendency to jack up global oil prices. With oil and gas revenues constituting a significant portion of Russian budget revenue, these price hikes deliver a temporary boost to the Russian budget. Even though temporary spikes may not last long, they can still generate substantial financial benefits for the Russian government in the short run.
- Blueprint for a Substitution: If Iranian oil supplies are disrupted, major consumers such as China might turn to Russian oil instead. With tensions in Europe persisting, Russia could potentially capitalize on this opportunity to compensate for reduced sales to Europe.
- Strategic Advantages: The Iran conflict has the potential to divert global attention away from the Ukraine war, easing pressure on the Russian government. Furthermore, aggressive Israeli strikes might make Western criticism of the Kremlin's actions in Ukraine seem less justified, benefiting Russia in both diplomatic and propaganda arenas.
- Crackdown on Smuggling Operations: One of the key challenges faced by Western countries is Russia's ability to evade sanctions through the use of old, run-down tankers and a complex web of shell companies and questionable intermediaries. This bypass of the sanctions regime can continue unabated if Western countries are not diligent in their enforcement efforts.
- Long-term Financial Strain: Despite these short-term advantages, Russia's economic situation remains precarious due to the ongoing costs and financial pressures of the Ukraine war. Sanctions and the resultant financial constraints continue to hinder Russia's ability to invest in other areas, complicating every foreign policy calculation.
In summary, the Middle East conflict stands to offer Russia temporary economic and strategic benefits, particularly in the form of increased oil revenues and a reprieve from global scrutiny. However, these benefits are limited by Russia's ongoing financial and military engagement in the Ukraine war and the need to contend with the long-term consequences of those actions.
- The price cap for selling Russian oil is under strain due to the rising oil prices caused by the Middle East conflict, specifically the Israel-Iran conflict, which has diverted attention from Putin's aggression in Ukraine.
- The escalation in the Middle East has unforeseen implications for Russia's energy sector, as it may lead to increased oil prices and potential gains for Russia, bolstering Putin's war chest.
- The region's instability might also present an opportunity for Russia to increase its oil exports to major consumers like China, as they may seek alternatives to Iranian oil.
- However, the short-term financial gains may not outweigh the long-term financial strain caused by the ongoing costs and pressures of the Ukraine war, sanctions, and the need to contend with evading sanctions through complex networks of shell companies and intermediaries.
