Cheers in the Kremlin: Israel's Fight Against Iran is a Lifeline for Putin's Struggling War Economy
Iran-Israel conflict serves as a lifeline for Putin
Get ready for the bubbly, the Middle East conflict is turning into a lifeline for Russia's ailing war economy. Israel's air strikes are pushing up oil prices -- and boosting Putin's revenue. And they're giving Donald Trump new excuses to keep the price cap and Putin's war chest untouched.
Ironically, before daunting off to the G7 summit in Canada, Trump had this to say: "Remember, sanctions cost us plenty." Translation: Sanctioning Russia is costing us a small fortune. Now, the major industrial nations' plans to further cripple Russia's war machine in Ukraine were all but dead in the water.
Truth be told, even the major EU countries, Britain, and Canada were almost unanimous about lowering the price cap of 60 dollars for the global sales of Russian oil. They had proposed a drop to 45 dollars as a means of tightening the screws on the Kremlin and stopping its aggression against Ukraine.
Politics 18th Sanctions Package Proposed: EU States Want to Pressure Putin with Lower Oil Prices
If timing is everything, the timing was as perfect as it could be. Black gold was at an all-time low, Russia's revenues were waning. But then along came Benjamin Netanyahu's attack on Iran. This Middle East war throws a wrench in the works. Besides undermining the nuclear deal, the bombing attacks have become the most significant diplomatic casualty of the conflict. And Vladimir Putin is the prime beneficiary of the attack on Tehran: it distracts his own air force's daily terrorist attacks on Ukrainian cities, drives up oil prices, and bolsters his war chest. And it provides Trump yet another reason to keep the money tap for Moscow flowing.
Champagne Corks Popping in the Kremlin
The Iran war is raising oil prices, tearing apart the price cap coalition. With the cap, Russian oil is artificially cheapened to weaken Putin's war chest: if it's priced above $60 and comes from Moscow, it can't be traded in the West. This artificial scarcity could push oil prices even higher in this volatile situation. Trump has little interest in that. With inflation in the U.S. already skyrocketing due to his trade war and debt binge, any further escalation isn't welcome.
German Heating Oil Prices Soaring after Iran Escalation
Meanwhile, Moscow is reaping the rewards of this conflict. With the onset of the bombing, the price of Russian Ural oil shot up by 15% within a few days, reports the "Moscow Times," quoting a Russian investment company. Moscow needs every last penny with its budget deficit set to triple this year. The losses in oil and gas revenue were over 50% in May compared to the previous month.
The cap is much too loose
If the plan to dry up Putin's primary money source seems to be going nowhere, it's due to the price cap's gaping flaws. It's leaky, ineffective, and doesn't keep the lid on Putin's oil business: with an armada of ancient scrap tankers, whose owners hide behind shell companies and questionable backers, the Kremlin has been circumventing sanctions since day one.
Will the Europeans Go It Alone?
Trump's departure from the price cap coalition raises the question the world has been pondering since his exit from the Western alliance: Will the Europeans dare to go it alone? Before the G7 summit, EU foreign policy chief Kaja Kallas expressed support for a unilateral reduction of the price cap if needed. But Trump's hasty departure from the summit seems to have derailed the initiative. According to Bloomberg, some EU countries are now hesitant to act alone without the US, fearing that without Trump, Europe's collective support may waver. The warlord in the Kremlin will be overjoyed.
Vladimir Putin, Russia, Oil Price, Middle East Conflict
In short, the conflict between Israel and Iran is benefiting Putin's economy, but the success is short-lived. Sustained benefits depend on the conflict's longevity and impact on global energy markets. Additionally, the conflict could lead to a reevaluation of the price cap on Russian oil, potentially benefiting Russia's economy further.
- The escalating Middle East conflict, through Israel's attacks on Iran, is increasing oil prices, which is a significant boost to Russia's struggling war economy under Putin's leadership.
- Benefitting from this conflict, Russia's Ural oil prices have reportedly risen by 15% within a few days, providing a much-needed revenue source as the country's budget deficit is expected to triple this year.
- However, the price cap on Russian oil, intended to weaken Putin's war chest, has shown significant flaws in its effectiveness, as the Kremlin has been able to circumvent sanctions through the use of ancient scrap tankers and shell companies.
- As Trump departs from the price cap coalition, the question arises whether the Europeans will dare to act alone in tightening the screws on Putin, given the potential wavering of support without the US. The success of Putin's economy from this conflict is contingent on its longevity and impact on global energy markets, as well as any potential reevaluation of the price cap on Russian oil.
