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- My raw materials: closure of key Middle Eastern straits drives oil prices to the maximum
My raw materials: closure of key Middle Eastern straits drives oil prices to the maximum
The closure of two key Middle Eastern straits, the Strait of Hormuz and the Bab el-Mandeb Strait, led to an increase in oil prices: on July 23, the price of Brent reached $100 per barrel. If the conflict between Iran and the United States is not resolved, further price increases may continue. At the same time, even if the situation in the Middle East stabilizes, the market, according to experts interviewed by Izvestia, is unlikely to return to its previous level. How the change in the cost of raw materials will affect the Russian budget and what additional revenues the state can receive — in the Izvestia article.
Why is the price of oil rising?
On July 23, the price of Brent crude oil reached $100 per barrel for the first time since May 22. At the beginning of the week, the quotes were at around $89. The last such sharp rise in prices was observed in March, at the first stage of the escalation of the conflict between the United States and Iran.
The current dynamics are also directly related to the situation in the Middle East. According to Kirill Rodionov, an independent energy expert, the risks have increased due to the threat of blocking not only the Strait of Hormuz, but also the Bab-el-Mandeb Strait, one of the key sea routes between the Red Sea and the Gulf of Aden. About 12% of the world's maritime oil trade and about 8% of liquefied natural gas (LNG) supplies pass through this strait.
An unprecedented situation has developed in the Middle East, when all key sea corridors were under attack at once. Iran has effectively blocked the Strait of Hormuz and banned the passage of tankers without its consent, which has halted direct exports from the Persian Gulf. At the same time, the Yemeni Houthis declared a naval blockade of Saudi Arabia, launching attacks on tankers in the Bab el-Mandeb Strait. The reason, they said, was an attempt by the central government of Yemen, close to Riyadh, to attack a plane carrying high-ranking Houthis. As a result, the movement officially withdrew from the ceasefire with the kingdom, which had been in effect since 2022.
For this reason, ships are forced to change routes, as they have lost the opportunity to use the southern entrance to the Red Sea and the passage through the Suez Canal. There are fewer and fewer safe transport corridors in the region.
— The increase in Brent prices is a consequence of the fact that tensions between the United States and Iran continue to increase. Media reports about Washington's intentions to expand the operation against the Islamic Republic to ground-based ones increase the risks, and key Middle Eastern oil supply routes remain blocked. Against this background, raw material prices are rising in July at about the same rate as in early March," explained Finam analyst Alexander Potavin.
As the American leader previously stated, the United States is the largest oil producer in the world, thanks to which Washington earns from the high price of raw materials.
It cannot be ruled out that the often contradictory statements and actions of the US president may well be used to play on the stock exchange in order to make money on the dynamics of the value of stocks and commodities, says Alexey Gromov, Chief Energy Officer at the Institute of Energy and Finance Foundation. This issue should be considered by the competent authorities of the country, but, most likely, it will be possible to conduct an investigation only after the end of Donald Trump's presidential term, the expert added.
What prices do experts predict?
Now we can expect the growth of Brent quotations to stop at current levels, Alexander Potavin believes. However, in the event of a further escalation of the situation around Iran and the start of a US ground military operation, oil prices may rise to $105-110 per barrel.
If the geopolitical situation on the Middle East coast stabilizes and the United States and Iran conclude a truce again, then, of course, this will spur the cost to decrease, Alexey Gromov believes. However, according to him, the situation at the time of signing the memorandum and at the present time are fundamentally different. At that time, a significant number of tankers with already loaded oil accumulated in the Strait of Hormuz, which was eventually delivered to customers, which contributed to lower prices. Currently, no new volumes of raw materials have been formed in the region, and the confidence of market participants in political decisions has been undermined. Therefore, even with the stabilization of the situation, the drop in quotations is likely to be less significant than a month ago. According to him, in this case, the price of Brent may decrease to a maximum of $ 80-83 per barrel.
Alexander Kargin, an expert on the Middle East, believes that the situation will only worsen due to the transport blockade and instability in the markets. The current round of the Middle East conflict is much more widespread than at the beginning of spring. Movements supported by Tehran are joining the war, and Iran itself, being unable to strike at American military bases, will continue attacks on the territories of its allies in the region. At the same time, Israel, which is focused on resolving the Lebanese problem, has not yet been involved in the confrontation. But, according to him, in the event of a provocation from Tehran, the Jewish state will react harshly.
According to CNN, Israel is already developing three scenarios in case of a large-scale escalation: joining the campaign at Washington's request, a retaliatory strike or a preemptive attack in case of a direct threat.
Thus, according to the analyst, the escalation may continue and escalate into a full-scale war, so we should not expect a rapid decline in oil prices in the near future. At the same time, the problem lies not only in the direct confrontation between Tehran and Washington. The region remains divided due to the historical rivalry between the four centers of power — Saudi Arabia, the United Arab Emirates, Turkey and Iran. These countries compete for influence in the Persian Gulf, control over energy flows and sales markets.
In May, the UAE unexpectedly withdrew from OPEC and OPEC+, seeking to increase oil production, including amid the unfolding crisis. This weakened Saudi Arabia's position as a key market regulator and created additional difficulties for the cartel's work. Thus, the accumulated contradictions between the leading players in the region against the background of high instability remain unresolved, Alexander Kargin emphasized.
— New land corridors could defuse the situation, but the existing capacities are not able to compensate for the naval blockade. "On paper," the alternatives are the UAE pipelines to Fujairah and the Saudi Petroline highway, but they will not replace the traffic of supertankers, added logistics specialist Ivan Amelkin. — In total, both of these pipelines can provide the world with about 8.5–8.8 million barrels per day. But more than 20 million people were passing through the blocked Strait of Hormuz. These two pipes, even working at the limit of their capabilities, leave the global market with a giant "hole" of 11-12 million barrels of oil per day.
Saudi Arabia has previously developed alternative logistics routes, Alexander Kargin added. For example, through Jordan and Israel, and then to the Mediterranean Sea. There is also a plan to carry out logistics through Syria and then Turkey. However, they will take years to implement, he believes.
According to Ivan Amelkin, the only working option now is to launch a fleet bypassing Africa. But this will lengthen each flight by 15-20 days, which may cause a shortage of ships and raise the cost of freight. The expert believes that oil at $100 per barrel is just the beginning. Due to the rise in price of marine fuel and diesel for trucks, carrier tariffs will increase, because fuel accounts for a third of the cost of the voyage. As a result, all the goods on the shelves will rise in price, and Europe will face a new round of inflation. To contain it, central banks will keep rates high. Expensive loans will slow down the industry, and businesses will have to save heavily, he concluded.
How will rising prices affect the Russian budget
The value of Russian Urals is traditionally determined based on Brent quotations, taking into account the discount, as well as logistical costs and delivery conditions. As of July 23, a barrel of Urals was worth about $80.
As Alexey Gromov notes, Russia has been exporting record volumes of oil for more than six weeks now. According to Bloomberg, in June, Russia increased exports to a record high, exceeding 4.11 million barrels per week, the most since the beginning of the year. Of course, an increase in global quotations will contribute to an increase in the Urals price, and a reduction in available sources of oil supplies in the Middle East may make Russian raw materials more in demand. Currently, the discount against Brent is $25-27 per barrel. Under favorable conditions, the discount on Urals may decrease, and a return to the April-May situation is likely, when Russian oil was sold with maximum revenue for the budget in 2026.
According to preliminary calculations by the Reuters news agency, oil and gas revenues of the Russian budget in July may grow by about 60% compared to the same period last year. At the same time, the budget-friendly situation may be complicated by possible new sanctions from the United States and the European Union, said Alexey Gromov, Chief Energy Officer at the Institute of Energy and Finance Foundation.
According to an approximate estimate by the Finam investment holding, an increase in the average annual Urals price by $1 per barrel could increase Russia's oil and gas revenues by about 150 billion rubles. However, it is now more difficult to predict the total amount of such income. According to Olga Belenkaya, head of the company's macroeconomic analysis department, the calculations are influenced by several factors, including a change in the Urals discount to the Brent benchmark, as well as the need to import petroleum products with the payment of an imported fuel damper, which reduces budget revenues.
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