Russia may eliminate budget deficit if Iran closes Strait of Hormuz, economist says

Economist Oleh Pendzyn, a member of the Economic Discussion Club, said this live on Espreso TV.

"If we look at a map of the region, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman. Historically, 25% of global oil passes through this route. It’s not just Iran, but also key OPEC countries that rely on it. So any disruptions to shipping there would raise insurance costs and reduce global oil supply, which pushes prices up. Current estimates suggest Brent could go over $100 per barrel if Iran shuts the strait," he commented.

He said that understanding the impact on Russia’s economy and its ability to fund the war in Ukraine requires looking at the numbers. If Urals oil is priced at $70 per barrel, Russia’s 2025 budget deficit is 1.3 trillion rubles. At $57 per barrel — the pre-Gulf war price — the deficit rises to 3.8 trillion rubles. This shows a significant difference.

"Russia’s National Wealth Fund, the only source to cover that deficit, holds 2.8 trillion rubles. So, if oil had stayed around $57–58 per barrel, and our allies in the 18th sanctions package had lowered the price cap from $60 to $45, and they were ready to, Russia would’ve had enough money only until September. But if Brent hits $100 and Russian oil sells at $90, the deficit disappears. Russia would be running a surplus," he explained.

Pendzyn added that for Ukraine, it’s crucial to keep global oil prices low. But with conflict erupting in the Persian Gulf and uncertainty around the Strait of Hormuz, it’s unclear how or when this will end.

"This situation is already pushing prices up. Brent is now at $78 per barrel, and that’s before any full blockade of the Strait. We’ll see what happens next," he concluded.

• On June 16, Bloomberg reported that the European Commission’s push to lower the cap on Russian oil prices met resistance from several EU countries unwilling to act without U.S. coordination.
• On June 20, two diplomats told Politico that, due to rising tensions in the Middle East, the EU is now shelving plans to enforce a stricter price cap on Russian oil exports.