The Crisis in the Persian Gulf Is Devastating russia’s Economy

The kremlin has miscalculated yet again. Every day that the crisis in the Persian Gulf continues poses a deadly threat to russian Urals crude. While the first days of the conflict did indeed cause oil prices on global trading platforms to rise significantly and erratically, the situation has now changed. Oil-producing countries have urgently begun diversifying their supply routes to consumers, bypassing the Strait of Hormuz.

Before the situation in the region and around the narrow part of the Strait escalated, approximately 3.5 million barrels of oil per day – out of a total of 15 million – were transported via alternative routes; today, the figure has reached 6.5 million.

The two most promising routes at present are currently undergoing active modernization. The first is the Saudi “East–West” oil pipeline, built back in the 1980s, which transports oil from the Abqaiq complex to the port of Yanbu on the Red Sea. The other is the expanding UAE oil pipeline through the port of Fujairah in the Gulf of Oman, located approximately 145 km south of the Strait. By 2027, engineers plan to add another 1.2 million barrels per day to oil shipments via these routes. This will bring the total volume of oil bypassing the Strait of Hormuz to 8 million barrels per day.

Thus, with each passing day, global oil prices are gradually becoming less dependent on the situation in the Persian Gulf. At the same time, the increase in Venezuela’s oil production, the rise in OPEC+ quotas, and the UAE’s withdrawal from OPEC – all these developments are likely to decrease pressure on global energy carriers prices. Consequently, russian Urals crude will become cheaper even faster due to the producer’s toxicity and unreliability, as well as the supplier’s status as a sanctioned entity and its “scheming” practices.

Ultimately, moscow’s losses and shortfalls in state budget revenue will only grow. Economists’ estimates of this year’s shortfall in the rf’s state treasury – amounting to 2 trillion rubles from oil and gas trade – will prove overly optimistic in the near term.