Did America just hand the Gulf to Russia?

Six weeks ago, Russia was marginalised; it could barely find a buyer for its oil, but thanks to the Trump administration, all that is now water under the bridge.

Since the introduction of the new Trump oil sanctions at the end of last year, Indian refiners were cutting orders to Moscow as the Treasury Department cracked down on the Russian shadow fleet. Around 140mn barrels of crude sat on tankers going nowhere. The price cap was working. For the first time since 2020, the Kremlin was also losing its key ally in South America with the decapitation of the Madur regime in January.

Then Israeli Prime Minister Benjamin Netanyahu and his ultra-right wing allies convinced the sitting US President to start the war in Iran that both the previous Biden, Bush and Obama administrations had refused to do. According to a NYT report, Netanyahu got US President Donald Trump on his own in the Situation Room in February and told him victory was “almost certain.” Trump took the bait.

Having covered energy and politics in the Middle East for years, one cannot recall a single act of American foreign policy that so comprehensively served Russian interests so blatantly as this. Operation Epic Fury killed cancer-ridden 86-year-old Ali Khamenei (big win?). It also pummelled the Western sanctions policy on Russian energy in one fell swoop.

Consider what has happened since February 28. Russian Urals crude, which, as IntelliNews reported, was trading at deep $20-$30 discounts to Brent and struggling to clear, hit a 13-year high. Currently the Russian Urals blend of oil is trading at $122 per barrel, an almost $30 premium to Brent. Sergey Vakulenko at the Carnegie Russia Eurasia Center calculated that even a $30-a-barrel rise meant an extra $8.5bn a month for Moscow, with $5bn going straight to state coffers.

By mid-March, Indian refiners were paying more for Urals than for Brent. Let that sink in. The country Washington spent two years pressuring to stop buying Russian oil was now paying over the odds for Russian fuel.

Washington helped make that happen, “bigly”. The US Treasury issued India a 30-day waiver on March 6 to buy stranded Russian cargoes. The same cargoes America had spent two years trying to embargo. They also incidentally pulled sanctions on 140mn barrels of Iranian crude floating somewhere off the coast of Singapore. Iran said they couldn’t have it anyway, and 100mn of this oil had already been sold to China, which is not participating in the US sanctions scheme.

Iran's ongoing closure of the Strait of Hormuz and strikes on Qatar's Ras Laffan LNG plant knocked out roughly a fifth of global LNG supply. Bangladesh, which got 60% of its gas from Qatar, is now paying double on the spot market. Bloomberg and Reuters reported on April 9 that Russia was offering sanctioned LNG from Arctic LNG 2 at 40% below spot prices through intermediaries in China, with fake paperwork showing the gas came from Oman or Nigeria. The buyers who were supposed to shun this stuff are now desperate enough to overlook where it comes from.

Robert Person at the Foreign Policy Research Institute said to Time: "Putin and his advisors have likely determined that war in Iran serves Russia's interests in the short term: higher energy prices, global distraction from a Ukraine war that Putin is not ready to settle, and America at risk of entrapment in another Middle Eastern quagmire."

He is right. However, this goes further than the short term.

Carnegie made the point that matters most: "It will be much harder for India to turn its back on Russian oil. That was already a no-go for China. Russia knows this, and as a result we likely won't see a massive discount on Urals crude again for a very long time." That sentence should alarm anyone in Washington who thought sanctions were a long-term tool for containing Moscow.

This is a structural change rather than temporary. Russia is one of very few major energy exporters whose supply does not go through the Strait of Hormuz. Its oil moves by pipeline to China, by tanker from Baltic and Arctic ports. Its gas goes through TurkStream and from the Pacific terminals. None of that is affected by what happens in the Persian Gulf. Every other major supplier, from Saudi to Qatar to the UAE, depends on a chokepoint that Iran has throttled and turned it into a drive-thru.

The Arab Gulf states have paid an extraordinary price over the past month. The UAE says Iran fired shy of 3,000 missiles and drones at the country in 40 days. Over $120bn has been wiped from the Dubai and Abu Dhabi exchanges. DP World is looking shaky, and the UK turning up to show support is doing a whole lot of nothing. The “Dubai” brand that took decades to build, the Gulf as a safe, stable, prosperous place, has been shattered.

Another Russia win. This is connected to Ukraine, which is the part that should really worry Western policymakers. Russian oil and gas revenues fund roughly a quarter of the federal budget and are key to funding its war machine in Ukraine. Every Patriot interceptor fired over Riyadh or Abu Dhabi is one fewer for Odessa. Every dollar added to the Urals price extends the runway for Russia's war. In fact, the UAE is moving drone experts away from the Ukrainian frontlines and offering them lush apartments in the Dubai Marina, an easy choice for war-weary Ukrainian military men but probably damaging efforts and focus there.

Asia's and Australasia's hunger for Russian energy may fade as China and India accelerate the development of renewables and coal. That is probably true over five or ten years. It is cold comfort right now.

Bangladesh has closed universities to save electricity. The Philippines declared a national energy emergency and gave workers a day off a week to reduce consumption. South Korea capped petrol prices for the first time in three decades. And Australian farmers last week ran out of diesel, according to some social media reports of angry arable men in WA.

Iran says three conditions of list of ten-point ceasefire deal have been violated already. Israel says the truce does not cover Lebanon. Trump posted on Truth Social that American forces would stay in place and if Iran does not comply, "the shootin' starts."

Even if a deal is signed in Islamabad on April 10, the damage is done.  The dust hasn't settled yet. The assumption that Gulf energy would always flow, at scale, through the same sea lanes, has been broken. Insurance premiums for Hormuz will stay elevated for years as it is now a “risk zone.” Buyers who found Russia during this crisis are not coming back.

The US-Israeli coalition went to war to neutralise Iran's nuclear weapons, but just handed the world's energy to Russia. Winning so hard.