The focus on events in the Middle East is back. For those not up to date: last week, Trump promised a more serious strike against Iran. Although no official harsh words were spoken, unofficial discussions about this began to intensify.
Trump issued an ultimatum to Iran, and as the deadline approached, an agreement for a two-week ceasefire was reached ahead of a final deal to end the fighting. The talks took place over the weekend in Pakistan.
Amid this backdrop, oil prices fell last week and started to decline sharply toward $90 per barrel. However, the negotiations collapsed. The US again demanded that Iran halt its nuclear program, which was once again rejected. Trump stated that the US will now begin a blockade of the Strait of Hormuz.
The calculation is simple: Iran earns money from oil sales, and this flow may not stop but could significantly decrease. This is an economic alternative to a ground operation, which Trump cannot yet pursue.
In addition, this is also a blow to China, as Iranian oil primarily goes there. Trump is trying to pressure both China’s proxies and the country itself. However, the overall situation remains the same: the Strait of Hormuz remains closed, meaning oil production will continue to decline, and prices will keep rising.
How Much Has Oil Production Fallen
According to the US Department of Energy, countries with American bases that are being targeted by Iran produced 21.7 million barrels per day (more than 20% of global demand) in February.
In March, the reduction in production is estimated at 7.5 million barrels per day, leaving 14.2 million barrels per day. In April, this reduction could increase to just over 9 million barrels per day.
The situation looks very serious. However, there is some positive aspect for Russia.
What Is Beneficial and Not for Russia
- This will further strengthen ties with China. Russia will aim to increase supply volumes, meaning the budget could receive significant funds.
- This may make Trump more cooperative on the Ukrainian track.
- Trump continues to clash with the EU, which is a threat to NATO as a main military opponent of Russia, as well as to the EU itself.
However, there are also downsides:
- The dollar has once again risen to 75-76, the yuan is trading at 11.15, and the euro is below 90. A stronger ruble is due to the suspension of the budget rule.
- Attacks on Russian oil facilities have increased. Efforts are being made to reduce volumes and offset price increases. This raises the risk of direct military escalation. I would especially highlight the seizure of Russian tankers.
- The Moscow Exchange Index continues to decline. The drop in stock prices has been ongoing for six consecutive weeks. The last time we saw such a long series was in the first quarter of 2025.
The situation is beginning to look dangerous for short-term bulls: the index could fall to around 2685 points. This would happen if the index breaks through the intermediate support level at 2700 points.
If the index breaks lower and falls below 2685, it could return to 2630 points, but it’s too early to think about that.
That’s all. Keep an eye on the conflict in the Middle East and mourn the weakening currency against the ruble. Have a great working week.
FAQ
What caused the recent drop in oil prices?
The drop in oil prices was influenced by the ongoing conflict between the US and Iran, along with the closure of the Strait of Hormuz, which disrupted oil supplies.
How does the situation affect Russia?
The situation could benefit Russia by strengthening its ties with China and potentially making Trump more cooperative on the Ukrainian issue, although there are risks involved.
What are the implications of the Strait of Hormuz closure?
The closure of the Strait of Hormuz leads to reduced oil production and higher prices, creating uncertainty in the global market.
