For Russia - Gulf War 3 Creates Economic Wins but Also Risks
Trump’s decision to join Israel in launching a full-scale war against Iran, Gulf War III, has appeared as manna from heaven for President Putin in Russia.
Kyiv Post
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Gulf War III has boosted global energy and commodity prices, which, combined with a US decision to ease sanctions on Russia, will boost budget and export revenues to Russia, filling Russian coffers and enabling Putin to sustain the war against Ukraine and Europe longer than might otherwise have been the case. And by giving Putin further leverage through the global energy market, Putin will hope this will encourage Trump to push Ukraine and Europe to accept a bad peace deal in Ukraine, one that favors Moscow.
The timing of Trump’s decision to go to war with Iran could not have come at a more opportune time for Putin. It came as the tightening of sanctions on Russia over the course of the past year, with tighter secondary sanctions on those trading with major Russian oil companies, the lowering of the G7 oil price cap to $46 a barrel, and a much more muscular Western response to Russian shadow fleet tankers appeared to be finally working.
As a result, for the first few months of 2026, both the Russian budget and energy export receipts had dropped markedly.
The timing of Trump’s decision to go to war with Iran could not have come at a more opportune time for Putin.
In February 2026, for example, IEA data show that export revenues for oil and petroleum products fell by $1.5 billion to just $9.5 billion, the lowest level since the start of the full-scale invasion of Ukraine in 2022. This reflected a rise in the discount demanded by purchasers of Russian oil to over 30%, as well as lower export volumes. In the same month, Russian oil export volumes declined to 6.6 mbpd, down 850,0000 bpd month on month and again the lowest level since 2022. Volumes of exports appear to have been reduced both because of the limitations from sanctions and also because of the success of Ukrainian drone and missile strikes on Russia’s energy sector infrastructure.
The US president said there are multiple points of agreement with Tehran, with the nuclear issue remaining the top priority.
The budget and balance-of-payments data showed lower energy-sector exports and receipts. The trade surplus in January was down around one-third MOM, and over 10% YOY, at just $6.5 billion. On the budget side, oil and gas revenues were down 44% YOY in the first two months of the year, with the deficit rising to 1.5% of GDP, close to the full-year deficit target. The government responded by hiking taxes, with VAT rising from 20% to 22%, and rumors of plans afoot to cut spending by 10%, albeit priority sectors like defense are likely to be spared.
As it was, the Putin regime appeared set to face a tightening budget noose, with lower revenues, increased demands from the military, and reduced buffers. With spare funds in the National Welfare Fund eroded, the government would need to cover a larger budget deficit from higher debt issuance domestically. This latter policy meant higher interest rates, the further crowding out of the nonmilitary/Defence sector, and also likely high and higher inflation, which would also keep policy rates higher and growth lower.
The economy had already appeared on the brink of recession, with real GDP contracting in the first couple of months of 2026 and full-year real GDP growth forecasts close to zero. Business surveys have been trending downward, with some sectors, such as construction, posting double-digit declines. The economy has increasingly appeared as a two-speed economy: the military-industrial sector still benefiting from ramped-up defense spending and prioritization, and the rest beset by high inflation, labor shortages, high wage costs, high debt, and high interest rates.
But just as the economic downturn appeared set to force Putin to make difficult choices - perhaps having to concede ground in Ukraine peace talks - Trump has gifted Putin a huge win through his bizarre decision to attack Iran with seemingly little real, well-thought-out strategy.
In the near term, this will serve as a get-out-of-jail card for Putin. Higher oil and energy prices, and the US decision to ease sanctions on Russian oil, will bolster Russia’s budget and balance-of-payments inflows. Urals oil prices look set to have tripled, and this could easily boost Russia’s oil and energy receipts by as much as $10 billion per month. That is a huge windfall gain for Russia, giving Putin more funds to wage the war against Ukraine. Evidently, Trump neither thought of this implication nor cared.
A couple of important caveats herein though.
Trump has gifted Putin a huge win through his bizarre decision to attack Iran with seemingly little real, well-thought-out strategy.
In these periods of systemic global risk, it is often unclear where the shoe will drop or what the knock-on implications will be. As evidence of this, gold prices have also dropped by around one-fifth from their highs as investors flee to the relative safe haven. Some of the dollar and Gulf states sell gold reserves to meet day-to-day spending needs. Russia had benefited from a huge $200 billion windfall from gold price valuation effects, but will now see much of that gain, or around $70 billion, disappear in paper losses.
In addition, we don’t yet know the longer-term implications of an extended period of high oil prices. Likely, this will result in demand destruction through lower global growth, similar to the period around COVID or the Global Financial Crisis of 2008. If this becomes globally systemic, this could ultimately collapse oil and commodity prices, leaving Russia as the ultimate loser and even perhaps the collapse in the Russian economy that many thought sanctions would deliver.
Herein, imagine the impact on Russia of oil falling to $50 a barrel or below and staying there, as Russia struggles with production and physical export constraints due to the prolonged impact of sanctions and Ukrainian deep-strike attacks.
From the Russian perspective, I would be careful what I wish for - higher short-term oil prices could deliver a longer-term catastrophe for the Russian economy.
See the original of this article from the author’s @tashecon bloghere.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.
