US-Iran war boosts Russian oil revenues

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0:17Charles Clover: Good morning from the Financial Times. Today is Friday, March 13th, and this is your FT News Briefing. The Gulf states are getting slammed by the war in Iran, and we'll take a look at how long the conflict might actually last. Plus, Russia is benefiting from the surge in oil prices, but how much of a difference will it make for Moscow? I'm Mark Filippino, and here's the news you need to start your day.

0:49Charles Clover: Oil producers and the Gulf states have lost an estimated$15 billion in energy revenues since the U.S. and Israel attacked Iran. The Strait of Hormuz is closed. That's trapped millions of barrels of crude. The Gulf remains a treacherous place. Two tankers were hit off the coast of Iraq early Thursday morning, and at least 18 ships have been attacked since the strike started two weeks ago. Yesterday, the price of Brent crude settled up more than$100 a barrel, and equities dropped. The S &P 500 closed down 1.5%, and the stocks Europe 600 closed a little bit more than half a percent lower. Government bonds also suffered.

1:26Charles Clover: The yield on the 10-year U.S. Treasury reached its highest level since the conflict began, and 10-year U.K. gilt yields hit their highest level of the year.

1:41Charles Clover: Moshtaba Khomeini made his first statement on Thursday since being appointed Iran's supreme leader. He called for the Strait of Hormuz to remain closed and warned Iran will continue to target U.S. military bases in the Gulf. With tensions high and a lot at stake, what happens next? Charles Clover is the FT's defense and security correspondent. He joins me now. Hi, Charles. Hi. Hi. Thanks for having me. Good to have you. So U.S. President Donald Trump has made clear he wants a short conflict. Iran keeps ratcheting up attacks. How can we square this circle about what happens next? Well, I think Iran wants to establish deterrence.

2:18So it wants the U.S. to bear some pain for its decision to go to war in order to deter the U.S. from ever doing this again. So even if the U.S. wants out of the conflict, my sense and the sense of a lot of experts I've spoken to is that Iran will actually try and keep going. And is the U.S. prepared for what comes next? Well, the U.S. has the biggest military in the world and they have a lot of assets in the region. Do they have the right assets? That's the question. Iran has shown that it's perfectly capable of responding. even if they fire, you know, one missile a day and it gets through, they can actually respond and be a threat to the U.S.

2:59Now, like I said, Charles, Iran's supreme leader made his first statement on Thursday and he hailed his army's, quote, crushing blows against the U.S. and Israel. Is Iran weakened by two weeks of war? I mean, that's anybody's guess. The U.S. says that they've done over 5 ,000 strikes on Iran. They've blown up pretty much everything there is to blow up in terms of targetable military assets. But the rest of it, Iran has been very successful in putting a lot of its military assets and its missile stockpiles underground and maybe out of reach. We just don't know how successful the U.S. has been. Iran has also been targeting its neighbors in the region, Charles, putting longer-term global oil supply at severe risk.

3:43I mean, we saw a lot of that yesterday with oil creeping back up over$100 a barrel. Will Gulf nations be forced to, at some point soon, pick a side in this conflict? Well, I mean, I guess they already have picked a side. They have decided to host U.S. bases in the region. They host the U.S. military. They're on the U.S. side. I think there was a lot of trepidation about the U.S. decision to go to war and the consequences for the region and for energy supplies in general and for the whole global economy. But the Gulf states are, whether they like it or not, part of it. But in that, I don't see them necessarily joining Iran or something.

4:24I think what they might do is start putting pressure on the U.S. to end the war. They're very much dependent on the U.S. for defense from Iran. So they're not in a position where they can kind of bargain, I don't think. President Trump has said eliminating Iran's nuclear threat is of, quote, greater interest and importance than the surge in oil prices we've seen over the past couple of weeks. How are those two factors going to shape the outcome of this conflict? I mean, that's a question only for Donald Trump and the U.S. White House. I think they seem to have been taken very much by surprise by Iran's response throughout the region, which has ratcheted up oil prices.

5:04I'm not sure why they didn't see that coming. But, you know, you have a White House that's very focused on the stock market as an indicator of whether it's being successful and tends to rethink its decisions when the consequences are really being felt in the stock market. And I think that's going to happen. You know, at some point, I think the U.S. just comes under pressure to, you know, declare victory and leave. and whether or not it has managed to destroy or dismantle Iran's nuclear program, I think they will find a convenient exit strategy and say that's it.

5:40Charles Clover: Charles Clover is the FT's defense and security correspondent. Thanks so much for your time, Charles. Thank you.

5:51Charles Clover: Okay, so we just heard about how Gulf states are struggling to keep their oil exports going and the stress that's put on the oil market as a whole. but the chaos has been good for Russia. The country is earning as much as$150 million a day in extra budget revenues from its oil sales, which it really needs right now. Moscow's budget deficit has ballooned in the past couple of months. Here to tell us more is the FT's Anastasia Stogny. Hi, Anastasia. Hi, thanks for having me. Good to have you. So can you explain exactly how Russia is raking in all this extra revenue? So first of all, the main reason for that is that global oil prices went up.

6:31The second reason is that the prices for Russian oil are up as well. And it's not as straightforward as it seems because Russian oil has been traded at a huge discount recently. But since the war in the Middle East erupted, Russian oil has been traded almost at the same level as Brent or sometimes even with a premium. So Russia is getting more money from high prices overall, from smaller discounts, but also Russia is selling more oil physically. So Russia ramped up its sales of oil to China and to India, and it managed to do so because the U.S. is somewhat's pressure to stop buying Russian oil.

7:16How important is this revenue to Moscow right now? Look, Russia's budget deficit is increasing. In reality, it's less than 2%, but it's growing indeed. And the reason for that is that on the one hand, Russia has enormous spending because it's a war of aggression against Ukraine. And on the other hand, the economy is slowing down, which means Russia gets a bit less than it would otherwise from taxing its whole economy, the customers, etc. In that situation, every extra penny counts. And we're talking about millions, not pennies here. But because the conflict is not that prolonged yet, Russia has not earned that much compared to how much it has lost in the recent months.

8:01Russia needs this to go on for at least a couple of months in order for this situation to reverse the public finances erosion. How are the US and Europe reacting to all this? As one could expect, the US and Europe are reacting in completely opposite ways. So Vladimir Putin sent signals to Europe saying that he's ready to start selling Russian fossil fuels to Europe again, if Europe can manage to not be political about that. But I don't think we have heard any signals back from Europe. When it comes to the US, Donald Trump a couple of days ago mentioned that he had a productive conversation with Vladimir Putin about Iran.

8:43And then he spoke about some mysterious countries who could see sanctions being lifted from them. So he didn't mention particular countries, but of course the market believed this could be Russia. This messaging, of course, is very promising for Moscow, but all these are just words and they have not translated into prices or profits for Russia yet. Could all this extra revenue and the general strain on the oil market impact the war in Ukraine? It's just an educated guess, but not really. And I can explain why. So the first reason is that these profits are not massive. If we're talking about this month, for example, March, let's say the prices stand pretty much where they are for the whole month.

9:25It means that Russia will get, if it gets really lucky, four to five billion in overall additional revenues. So in that case, Russia still gets less than it used to a year ago or two years ago. The change is in a positive direction for Moscow, but also it doesn't mean that Moscow has way more money. It means that it loses a little less money. The second thing is that the situation on the front line does not necessarily reflect the situation with public finances. Because the Kremlin and Putin personally is very persistent in the idea that all the spending, first of all, should go there. So if he has to cut, he will cut anything but not war spending.

10:11Anastasia Stagne covers Russia for the FT. Thanks, Anastasia. Thank you.

10:21As we've been digging into, oil has been the story of the past two weeks with the war in Iran raging. It's a subject of concern not only for global governments, but also consumers, and next week for central banks. Our Monday host, Victoria Craig, is here to talk through this with me. Hi, Victoria. Hey, Mark. Okay, so it's actually a really big week next week for central banks. What's on deck? Yeah, well, we have four meetings in just two days to keep tabs on. Wow. Yeah, there's a lot of global central bank action. We've got the U.S., Europe. We also have the Bank of England and the Bank of Japan all in the middle of next week.

10:55And the key thing that matters for policymakers everywhere is the impact that this oil surge is going to have on inflation. We've already seen prices to fill up a car here in the U.S. jump, and that is a real problem for commuters across the country. Lots of people across America drive to work every day. And, of course, across the world in Europe and Asia, there's also been a surge in natural gas prices, which is a concern for households there. Are we expected to see any policy changes from these central bankers next week? Not really. Here in the U.S., markets are expecting at most one rate cut this year.

11:29And to put that into context, before the war began, they had been forecasting at least two cuts before the midterm elections in November. Over at the ECB, Christine Lagarde, who runs that central bank at the February meeting, said that the ECB was in a, quote, good place and that there could be an argument for rate cuts in the near term. Now, though, economists are expecting the ECB to raise rates by at least a quarter point one time before the end of the year. We're also expecting similar kinds of readjustments of expectations for other global central banks, too. So we'll keep tabs on that. But I think the key question mark is whether these central bankers are going to choose to see what's been happening to the oil price and other energy prices as a one-time shock to the global economy or whether this is something that is more sustained and will require more action down the line.

12:20Charles Clover: Plenty to dig into. Victoria Craig hosts the Monday edition of the FT News Briefing. Catch that right here in the podcast feed first thing next week. Thanks so much, Victoria. Thanks, Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing was produced this week by Sophia Ahmed, Julia Webster, Sonia Hudson, Fiona Simon, and Victoria Craig. I'm your host and editor, Mark Filippino. Our show is mixed by Alex Higgins, Kelly Gary, and Kent Millitzer.

12:51Charles Clover: We had help this week from Peter Barber, Michael Lello, and David DeSilva. Our executive producer is Topher Forges. The FT's global head of audio is Cheryl Brumley. And our theme song is by Metaphor Music.

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