— What is the state of Russia’s economy in one word?

— Good.

— And in two words?

— Not good.

This old joke, apocryphally attributed to Russia’s former president Boris Yeltsin, neatly summed up the state of the country’s economy in the 1990s. It also captures the impact on Russia of the war in Iran today. Whether the ceasefire holds or the US blockade of the Strait of Hormuz escalates the war, Europeans can use Russia’s mixed fortunes to increase their leverage over Moscow.

The good

In the short term, from Russia’s point of view, this war is a gift that keeps on giving.

First comes the money: surging energy prices and the Trump administration’s decision to lift sanctions on Russian oil add around $150m a day to the Kremlin’s straining coffers. Ukrainian estimates suggest that is roughly how much Moscow spent on its war each day last year.

Next are the holes in Ukraine’s and the rest of Europe’s defences. America and its allies are burning through Patriot ballistic missile interceptors at quite a rate. Based on publicly available data, in just the first week of the war, they used more than Ukraine has received in total since April 2023. The US produces a maximum of 650 of the most advanced interceptors annually, with plans to increase this to 2,000 a year by 2033. Yet Russia makes up to 1,000 of various types of ballistic missiles a year.

Supplies of interceptors thus fall well short of what Kyiv needs. Moscow will exploit this. It is also safe to assume the deficit will continue for years, even if the boost in US production happens as scheduled. But it is not only Ukrainian defences that will be affected: several other European countries placed orders months ago, only to see their deliveries diverted to Ukraine or delayed due to production bottlenecks. Once the active phase of fighting in Iran really ends, the US is likely to prioritise replenishing its own military stocks. This will create an even bigger shortfall in Europe.

Finally there is the smokescreen. With so much political and media attention on the Middle East, Russia has escalated in Ukraine. In early April it carried out its most intense aerial attack on the country since the invasion of February 2022, firing almost 1,000 drones and missiles in 24 hours. It has also targeted a maternity hospital, a school and a UNESCO heritage site in the west of the country in the last fortnight, in a show of its ability to reach almost any corner of Ukraine’s territory. 

The not so good

And yet, US president Donald Trump’s gift to Russia stops giving quite as much in the longer term.

First, money alone cannot fix a “not good” economy. The oil-price windfall is inadequate to plug the Kremlin’s budget holes; it certainly cannot address the structural problems with the Russian economy, which are getting worse with each day of President Vladimir Putin’s aggression against Ukraine. Moreover, analysis from Re:Russia suggests intensifying Ukrainian attacks on Russia’s oil-exporting ports have temporarily erased two-thirds of Russia’s oil windfall from the Iran war. Even if Moscow fixes the damage, Kyiv is likely to continue with these strikes. Russia can of course also step in to replace the oil Iran supplied to China. But, as many in Moscow’s expert circles already fear, this will only deepen its economic dependence on Beijing.

Then, there may be a loss of the Russian footprint in Iran and diminished diversification options for Moscow. The chaos of war and its aftermath are not conducive to long-term energy and infrastructure projects. The war has already put on hold two of Russia’s nuclear power plants in Iran (one under construction and one planned); Russian companies’ oil and gas exploration in the country has also stopped. Moscow’s long-term ambition to diversify transit routes through the “North-South” corridor linking India to Russia via Iran is also up in the air. The project has questionable economic benefits. But the Kremlin prized its strategic value of reducing Russia’s dependence on Western routes to access global markets. 

Third, the war—whatever its trajectory—may also affect Russia’s web of relations on the other side of the Persian Gulf. The Kremlin has invested in Arab Gulf states to diversify its energy transit routes, security and defence contracts and create more options to circumvent Western sanctions. But Gulf monarchies’ security concerns may lead them to move even closer to Washington due to future threats from Iran. This means their relationship with Moscow might get more hands-off.

So, the war in Iran will likely not help Russia’s position and interests in the Gulf much in the years ahead. Indeed, it may end up looking more “not good” than “good”. Ukraine’s leaders are trying to accelerate this trajectory through their strikes on Russia’s energy infrastructure. But the wrong move from Ukraine’s European partners could help the “good” for Russia stay that way for longer.

How to turn “not good” into leverage

Of course, the impact of the war in Iran is not looking good for Europe either. Whether that extends into the long term as it may for Russia depends on how the continent’s leaders respond today.

If European leaders fail to address the looming energy crisis, it will wreak economic havoc and alienate voters across the continent. This could deepen the cracks in the already fragile politics of countries like France and Germany, which both have elections on the way and far-right leaders and parties looking strong in the polls.

“Going back to Russian gas and oil, as some European politicians have advocated, is among the most short-sighted and damaging options. It would amount to Europeans renting a house from a known arsonist: it sure is cheap, but they cannot be certain the owner won’t set it on fire (again) to weaken and blackmail them”

There are no ideal options. But going back to Russian gas and oil, as some European politicians have advocated, is undoubtedly among the most short-sighted and damaging. It would amount to Europeans renting a house from a known arsonist: it sure is cheap, but they cannot be certain the owner won’t set it on fire (again) to weaken and blackmail them. Going back to Russian energy imports would also fill Putin’s pockets for the very war in Ukraine Europeans have been trying to stop. Helpfully, others have already set out fiscal and energy measures Europeans can adopt now to avert an economic crisis without playing with fire. 

Still, European policymakers are increasingly looking at whether to restart a dialogue with Russia, against the backdrop of the energy crisis and the—to date, ineffectual—US efforts to stop the war in Ukraine. If they rushed into such an exchange now, Europeans would open the conversation from a position of weakness, effectively inviting Putin to keep his maximalist positions rather than seek compromises. The chances of any eventual conversations with Vladimir Putin going well for Europe dramatically increase if EU policymakers first ensure Moscow cannot push too many of their buttons.

Europeans should therefore prioritise measures that weaken Russia’s leverage. The weaker Russia’s cards are vis-a-vis Europe on energy, Ukraine, and defence, the better the deal for Europe. It is one thing to discuss Russian energy supplies if Moscow is starved of other export options or if 95% of Europe’s needs are already covered from elsewhere, including home-grown green options. It is quite another—if not delusional—to expect the Kremlin not to use the state of global oil and gas markets to extract painful concessions from Europe. 

Europeans can also weaken Russia’s hand in Ukraine. Absent the necessary supplies of Patriots, Europeans should help Kyiv at least boost other types of air defence, including those made in Europe like MBDA’s Aster 30. (France’s recent budgeting law imposes a 30% production increase of these in the coming years.) Europeans must also invest in Ukraine’s homegrown drone and missile interception programme, even with lingering uncertainties around the country’s interception capabilities. Continuing to boost Europe’s defence spending, reinforcing NATO’s eastern flank and addressing Russia’s ongoing sabotage, disinformation and corruption operations and other hybrid attacks will also close off options for Moscow to manipulate European politics and increase Europe’s own deterrence and leverage against Russia. 

In other words, helping the “not good” impact of the Iran war on Russia arrive more quickly should become a conscious strategy for Europe. Because the stronger Europe is—and the weaker Russia becomes—the less likely it is that the old continent will seal off yet another Faustian bargain with Moscow. 

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.