The ongoing standoff between the United States and Iran is hurting most of the global economy. But not Russia. Data suggests that Moscow has already made billions of dollars of additional revenue from oil sales because of higher crude prices, as well as the fact that the United States temporarily rescinded sanctions on Russia to rein in global costs. But beyond the immediate windfall, how will the conflict in the Middle East aid Russian President Vladimir Putin, including in his own war on Ukraine?<\/p>\n
On the latest episode of FP Live, I spoke with Alexander Gabuev, the director of the Carnegie Russia Eurasia Center. Gabuev previously ran the Carnegie Moscow Center, which was shut down by the Kremlin in 2022. Subscribers can watch the full discussion on the video box atop this page. What follows here is a lightly edited and condensed transcript.<\/p>\n
The ongoing standoff between the United States and Iran is hurting most of the global economy. But not Russia. Data suggests that Moscow has already made billions of dollars of additional revenue from oil sales because of higher crude prices, as well as the fact that the United States temporarily rescinded sanctions on Russia to rein in global costs. But beyond the immediate windfall, how will the conflict in the Middle East aid Russian President Vladimir Putin, including in his own war on Ukraine?<\/p>\n
On the latest episode of FP Live, I spoke with Alexander Gabuev, the director of the Carnegie Russia Eurasia Center. Gabuev previously ran the Carnegie Moscow Center, which was shut down by the Kremlin in 2022. Subscribers can watch the full discussion on the video box atop this page. What follows here is a lightly edited and condensed transcript.<\/p>\n
Ravi Agrawal: I want to start with a very narrow focus: oil revenue. What\u2019s the math on how much additional money Russia is making from the heightened price of crude right now?<\/p>\n
Alexander Gabuev: My colleague, Sergey Vakulenko, who is one of the best in business, calculates that every $10 increase per barrel gives \u201cRussia Inc.\u201d\u2014the state and companies together\u2014roughly $100 million a month. The intake increases as the oil price grows and stays elevated. The Russian authorities declared that for the month of April\u2014the first month where these elevated prices are really reflected\u2014Russia earned $9 billion for its oil sales. That\u2019s double the oil revenues that Russia had before the invasion.<\/p>\n
RA: Fascinating. So that\u2019s obviously the oil picture, but, more broadly, is it fair to say that Russia overall is benefiting from the conflict in Iran?<\/p>\n
AG: There are three positive elements for Russia and one negative that is a silver lining for Ukraine. We discussed oil prices, and that\u2019s the most important boost. It\u2019s a big shot of adrenaline in the arm for Russian President Vladimir Putin\u2019s economy and his war machine. Add to that the fertilizers<\/a>, which are important; aluminum; and many other commodities<\/a> that are affected by the war (and that your readers definitely know about, because Foreign Policy does a lot of coverage<\/a> on these issues).<\/p>\n Second is the drawdown of Patriot interceptor missiles. By calculations from the first week of the war, the United States and its partners in the Gulf have used more Patriot interceptors than Ukraine has received from the United States and its allies since Russia\u2019s full-scale invasion in 2022. The problem is that Patriot interceptors are the only efficient antidote against Russian ballistic missiles. Ukrainians know what to do about cruise missiles and drones. A shortage of Patriot missiles is the key vulnerability: Imagine if we go into a winter season, and Russians manage to build a big stash of ballistic missiles and unload them against Ukrainian infrastructure, big cities, and military facilities\u2014that will be trouble.<\/p>\n Finally, the United States is distracted, consumed by another war for which there is no clear outcome for now. The Strait of Hormuz remains closed. This is a drag on the attention span of the U.S. national security establishment that could be spent on building leverage for Ukraine or working together with European partners. I may sound aspirational, but we\u2019ve seen the Trump administration making some moves on sanctions against Russia\u2019s largest oil companies. That was really helpful. We could have seen more of that had they not been dealing with the war. So these are the three positive elements.<\/p>\n One negative element for Russia\u2014the silver lining I mentioned\u2014is not of America\u2019s making, but of Kyiv\u2019s. Ukrainian President Volodymyr Zelensky and his team jumped immediately on the opportunity to tap into this new demand for interceptors against Iranian drones that countries in the Gulf have been exposed to. It turned out that the United States doesn\u2019t have really efficient air defenses against them, whereas Ukrainians have been living through attacks of Shahed drones for more than three years, and they know how to combat them. They have indigenous solutions, and they need money and industrial capacity to scale them up. So, team Zelensky has dispatched operators who are training local militaries on how to deal with those threats. They\u2019re also discussing joint ventures and investment from rich Gulf countries into the production of these interceptors. So, hopefully, that will give the Ukrainian defense industry a much-needed boost.<\/p>\n RA: Is Russia actively helping Iran in any way? I think there\u2019s some new reporting that Russia is shipping drone components to Iran via the Caspian Sea, and then Iran gets 2 million tons of Russian wheat that used to go through the Black Sea, which is also going through the Caspian now. What\u2019s your sense of how strong that relationship is right now and whether, given everything you\u2019ve been saying about how the conflict in the Middle East is helping Putin, that\u2019s making him want to double down on helping Iran?<\/p>\n AG: The data set that we are operating upon is patchy at this point. We rely a lot on the revelations of Western intelligence agencies, through the media and the tremendous job that the journalists are doing, but the statistics don\u2019t give you a very clear picture at this point. Russia is not Iran\u2019s treaty ally. It doesn\u2019t have an obligation to come to Iran\u2019s defense. The much-hyped strategic cooperation treaty is really not a military alliance and doesn\u2019t give Iran the type of Article 5 guarantee.<\/p>\n However, Russia is happy to help Iran with its limited means. The bandwidth is not necessarily there to make a big difference, because the Iranian air defense bubble was popped during the previous war last June. So there was very limited time to deliver the systems that Iran would need to restore its air defenses. By the way, Russia needs its air defense, too, because it\u2019s standing up to a very potent opponent\u2014Ukraine\u2014that strikes a lot of targets inside Russia, including industrial and military sites that are thousands of kilometers away from Ukrainian territory.<\/p>\n So, what Russia could have done for Iran is limited. But we know that Russia is sharing targeting data used to locate American assets and strike them in the region, and that Russia is sharing the drone components that you mentioned, Ravi. Iran provided Russia with Shahed drone technology first, and then Russia went into deep modernization. So, the drones that the Russians are using are still the original Shaheds, but they\u2019ve made many improvements, and they\u2019re happy to give this technology back to Iran to go after its opponent.<\/p>\n And then there are all the softer elements that Iran definitely needs, because the closure of Hormuz affects Iran negatively. It needs to import a lot of things, and the Caspian Sea is the logical way, so Russia is one of the lifelines that the Iranian regime is using to keep afloat. Why is Russia doing that? The organizing principle of Russia\u2019s foreign policy is to support the war against Ukraine. In every relationship, Russia is seeking help for its battlefield needs, help to generate cash flow for the war economy, and a tool to avenge massive Western help to Ukraine. In Iran, Russia definitely finds help for its battlefield needs via Shahed drones and other elements. And it\u2019s now a tool to pay back this debt in blood to Americans who have been helping Ukrainian defenders massively with intelligence provisions.<\/p>\n RA: As you were describing some of the threats that Russia faces on its soil from Ukraine, I was reminded of Russia\u2019s Victory Day parade just this past weekend. It was surprisingly muted. Tanks and military vehicles didn\u2019t go through the Red Square this year out of fear of Ukrainian attacks. The Kremlin also shut off mobile internet in the area in the days leading up to it. I have to ask, is Putin in a bad place<\/a> right now?<\/p>\n AG: This parade exposes that Russia is facing mounting problems in guaranteeing the security of its military and production assets, particularly oil and gas refineries and export terminals, which generate cash for the war machine. It\u2019s also facing the risk of Ukrainian long-range attacks on the capital. We\u2019ve seen a spectacular intelligence operation, Operation Spider\u2019s Web, where Ukrainians used state-of-the-art drones in order to strike Russian strategic bombers that were carrying missiles hitting Ukrainian cities. Amid this amount of threats, Putin has reasons to be worried. And the scaled-back version of the parade that you mentioned is a clear demonstration of that.<\/p>\n And, by the way, Russia really needed Trump\u2019s intervention at the very last moment to broker a cease-fire and to have a certain guarantee from Trump that Ukrainians will not attack the parade. Kyiv played it brilliantly in the public relations domain because it has shown that it has these capabilities to strike Russia. It can hold Moscow at risk. It can force Moscow to pull back all of these air defense assets to protect the parade, Putin, and the capital\u2014and it\u2019s not enough. So, they have to shut down mobile internet, causing a lot of anger. At the very end, it takes Trump to guarantee to Putin that Zelensky will not try to strike his parade. And then Zelensky issued a very funny executive order<\/a>, saying, \u201cI hereby order that the parade in the city of Moscow (Russian Federation) be permitted.\u201d The Russian state was really at a loss for words. It was deeply, deeply embarrassing.<\/p>\n RA: I can imagine.<\/p>\n Let\u2019s talk more directly about the state of play in the war now\u2014Russia\u2019s war in Ukraine and not the other war we\u2019ve been discussing so far. It seems like Russia actually lost some territory to Ukraine in the last few weeks, and it is now losing more personnel each month than it can recruit. What\u2019s your sense of the state of play on the ground?<\/p>\n