The sharp escalation in hostilities between Israel and Iran has triggered immediate consequences for global energy markets, but its most tangible beneficiary may be Russia.
Amid mounting budgetary pressure and rapidly depleting financial reserves, the rise in oil prices following the Middle East attacks has delivered short-term relief to the Kremlin’s strained wartime economy.
On the night of 13 June, Israel launched a missile strike on Tehran and other Iranian targets. The move, described as a pre-emptive attempt to disrupt Iran’s nuclear ambitions, prompted a large-scale retaliatory barrage involving ballistic missiles and drones. Energy infrastructure in both countries sustained damage, and the conflict triggered a surge in oil prices. Brent crude climbed by 13 per cent in the immediate aftermath—the sharpest single-day rise since February 2022. The price of Russian Urals crude, which had already surpassed the G7-imposed $60 per barrel cap, rose further to over $68 per barrel.
Oil Revenue and Budget Dynamics
Under Russia’s fiscal framework, oil traded above $60 per barrel enables additional contributions to the National Welfare Fund (NWF), which serves as a buffer for the federal budget. When oil prices fall below that threshold, the fund is used to cover deficits.
For much of 2024 and early 2025, Russia’s oil and gas revenues fell short of targets. Rising military expenditure—linked to the war in Ukraine—has further increased pressure on state finances. In this context, the rebound in energy prices comes at a critical time for Moscow. Higher crude prices directly translate into increased tax receipts and export revenue, offering short-term budgetary relief.
According to Russia’s Ministry of Finance, the NWF stood at 11.7 trillion roubles ($148.8 billion) as of 1 June 2025. However, only a fraction of this amount—2.84 trillion roubles or $36.2 billion—is considered liquid. The remainder consists of illiquid assets such as shares in state-owned enterprises and strategic holdings in domestic banks, including Sberbank and VTB. These assets cannot easily be converted to cash without destabilising domestic financial markets.
Constraints on Financial Resilience
The limited liquidity of the NWF has become increasingly problematic. Since the start of the full-scale invasion in 2022, Russia has been forced to draw down the fund repeatedly. In December 2024, for example, the government sold close to 100 tonnes of gold. In May 2025, the liquid portion of the NWF fell by $4 billion. At current rates of expenditure, analysts predict that the fund’s usable reserves may be exhausted by early 2026.
Russia’s liquid foreign currency holdings have also diminished. The NWF currently holds 153.7 billion yuan—the lowest level since the fund’s creation in 2008. Its gold reserves have shrunk from 400 tonnes at the beginning of the war to just under 140 tonnes. These trends underline the growing challenge of sustaining public spending, including military commitments, without access to Western capital markets or significant foreign investment.
Strategic Implications of Rising Prices
The conflict in the Middle East offers Moscow an unexpected financial reprieve. If oil prices remain elevated—particularly if the Strait of Hormuz becomes a flashpoint—Russia could see a sustained increase in revenue. The strait is a critical chokepoint through which nearly 25 per cent of global oil shipments pass. Its closure or partial disruption would likely push oil prices well above current levels.
Energy analysts at JP Morgan have warned that under extreme scenarios, global oil prices could climb to $120–130 per barrel. While such levels would create difficulties for importers, they would significantly improve Russia’s fiscal position, allowing the Kremlin to prolong its military operations without enacting politically costly domestic austerity.
Nonetheless, any financial relief is likely to be temporary. While the recent rise in energy prices may reduce fiscal pressure in the near term, it does not address the longer-term challenges facing the Russian economy. The liquid portion of the National Welfare Fund remains limited, and the underlying structural weaknesses in public finances persist. Rebuilding the fund’s capacity to support future budget deficits is not currently a realistic prospect.
Conclusion
In the immediate term, the Israel–Iran escalation has delivered a lifeline to Moscow, bolstering energy revenues and slowing the depletion of its reserve fund. However, the underlying vulnerabilities of the Russian economy—sanctions, reliance on commodity exports, and limited access to liquid assets—remain unresolved. As conflict persists both in the Middle East and Ukraine, Russia’s ability to sustain wartime spending without triggering domestic economic fallout will depend on how long elevated energy prices can be maintained.
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