In Summary

The US president’s Iran action means that Vladimir Putin could make up with the soaring price of oil – the real backbone of the Russian economy and his hold on power – for what he lost from the sanctions.

Donald Trump’s decision to withdraw from the Iran nuclear accord has brought a bonus for the Kremlin. The US president’s Iran action means that Vladimir Putin could make up with the soaring price of oil – the real backbone of the Russian economy and his hold on power – for what he lost from the sanctions.

True, Putin hasn’t (yet) gotten rid of the sanctions levied by Congress on Russia and reluctantly implemented by Trump. But the Russian president must be reveling in the fact that his US counterpart has caused just the sort of havoc in the United States and splits across the Western alliance that Putin wanted.

Let’s tote it up. Trump has withdrawn the United States from the Trans-Pacific Partnership trade pact, effectively empowering China; has been the only nation to pull out of both the Paris climate accord and the Iran nuclear deal; and has threatened Washington’s closest allies with a series of debilitating tariffs. And then there’s all the chaos that the investigation into Russian election meddling has managed to produce in the United States, while at the same time allowing Kremlin specialists to hone their chops on tactics that can be applied elsewhere around the world.

But the real, most tangible and most immediate impact is in the numbers – specifically the windfall Russia has reaped as an offset against the sanctions levied against it. The backbone of the national economy is oil and the foundation for Putin’s hold on power is its price. One year ago, the price of Brent crude was fluctuating between $46 and $51 per barrel. By Tuesday it had soared to $78, roughly a 60 per cent increase that took place at the same time the United States was tightening its sanctions on the Russian economy.

About $10 of the price increase in crude oil has come in the last two months, when the oil markets began pricing in the premium that would likely accrue after the United States’ withdrawal from the Iran nuclear treaty and the resulting sanctions on doing business with Iran.

With Russia producing nearly 11 million barrels per day of oil, that means an additional $110 million per day or $40 billion a year in additional revenue.

There’s no doubt the sanctions have had some incremental costs to the Russian economy, or certainly to a handful of oligarchs. April was not a good month for Russian stocks, the main index crashing some 11.4 per cent in one day, and the nation’s 50 wealthiest oligarchs losing a combined $12 billion, according to Forbes. That was, of course, on paper since few seemed to be cashing in their shares. Indeed, investors in Russian stocks were handsomely rewarded for their patience in the past month, with the RTS stock index surging from 1,085 on April 16 to 1,194 on May 11, a more than 10 per cent rise.

At the same time, Putin has begun hedging his bets, diversifying his markets for Russia’s crude oil exports. In January, a second oil pipeline to China was opened, potentially doubling China’s imports to 30 million tons through the two countries’ linked pipeline systems.

It is admittedly difficult to determine the precise impact of US sanctions in any macro sense on the Russian economy. But several of the large, effectively multi-national, publicly-traded firms appear to have thrived, improving their balance sheets – particularly the nation’s three biggest banks (Sberbank, VTB and Gazprombank); and three in the oil and gas space (Rosneft, Novatek and Transneft). The three oil and gas companies have substantially reduced their indebtedness, while the three big banks have become ever less dependent on external financing.