While the Strait of Hormuz standoff has driven up costs for oil-importing economies worldwide, it has quietly handed Russia a financial lifeline. Russian oil export earnings rose from an average of $10.4 billion per month in January-February 2026 to $19.1 billion in March, $21.5 billion in April, and $20.8 billion in May, according to the Kyiv School of Economics Institute’s mid-year sanctions assessment. That is roughly a doubling of monthly oil revenue in the space of three months — driven not by any change in sanctions policy, but by the same regional energy shock rattling markets worldwide.

Why the windfall happened despite tightening sanctions

The KSE Institute’s assessment is explicit about the mechanism: serious disruptions to global energy flows caused by the Iran war have prevented more transformative measures against Russian energy exports, leaving the overall sanctions architecture largely unchanged even as policy continued to advance in other areas — continued targeting of Russia’s shadow fleet, anti-circumvention measures, and broader restrictions on financial and military-industrial infrastructure. In effect, elevated global oil prices tied to the Hormuz crisis have provided cover, both financially and diplomatically, for Russia to keep exporting near sanctioned levels while earning substantially more per barrel.

The reversal risk now on the table

This is precisely why the emerging Strait of Hormuz reopening deal matters as much for Moscow as it does for Washington and Tehran. The KSE Institute’s own framing lays out the fork in the road for the second half of 2026: a prolonged global oil crisis would continue to support Russian export and budget revenues, while a faster return of the global oil market to surplus would expose Russia more fully to lower oil revenues, continued stagnation, and mounting fiscal and financing pressures.

Given that US and regional officials described a Hormuz deal as being in its “final stage” this week, the windfall that has propped up Russian government finances since March may be nearing its end — right as Russia’s underlying fiscal position remains structurally weak.

The underlying fiscal picture the windfall has been masking

Strip out the temporary Iran-war boost, and Russia’s core fiscal trajectory looks considerably more strained. The World Bank projects global oil supply moving into surplus, pushing Brent crude from an average of $68 a barrel in 2025 to around $60 in 2026 — the lowest level in five years — a dynamic that would resume once Hormuz-related disruption clears, according to The Moscow Times. To shore up the budget against that backdrop, Russian authorities are raising the VAT rate from 20% to 22% starting January 2026 and lowering the mandatory VAT registration threshold for smaller businesses from 60 million to 10 million rubles — tax increases that fall disproportionately on smaller regional enterprises even as military spending continues to claim an outsized share of the federal budget.

Why sanctions enforcement now hinges on China and India

The KSE Institute assessment argues Russia’s growing economic and fiscal vulnerabilities create additional opportunities to intensify sanctions pressure, proposing new energy, financial, and export-control measures. But the practical effectiveness of any tightened sanctions regime continues to depend heavily on whether China and India are willing to accept the secondary-sanctions risk of continuing to buy discounted Russian crude, according to analysis from CEPA. If China holds firm as a buyer, Moscow’s economic dependence on Beijing deepens further; if enforcement against third-country buyers tightens, the ruble and federal budget would face renewed pressure, potentially pushing the economy toward recession alongside sustained high interest rates.

Key takeaways

• Russian monthly oil export earnings roughly doubled from $10.4 billion (Jan-Feb 2026) to over $20 billion (April-May 2026), driven by the Iran-Hormuz crisis.
• The energy shock has effectively shielded Russia from more transformative Western sanctions measures during this period.
• A Strait of Hormuz reopening deal, now described as in its “final stage,” threatens to remove this windfall just as global oil markets are separately expected to move into surplus.
• Russia is raising VAT from 20% to 22% and lowering the small-business VAT threshold to shore up its budget against underlying fiscal weakness.
• Future sanctions effectiveness depends heavily on whether China and India continue absorbing discounted Russian crude.

FAQ

Why did Russia’s oil revenue rise in 2026 despite sanctions? Global oil prices spiked due to the Iran-Strait of Hormuz conflict, and the resulting disruption limited the West’s ability to pursue more aggressive sanctions on Russian energy exports during that period.

Would a Strait of Hormuz deal hurt Russia’s economy? Potentially yes — it would likely bring oil prices back down toward the World Bank’s projected 2026 average of around $60/barrel, removing the windfall that has cushioned Russia’s budget since March.

What tax changes is Russia making in 2026? VAT is rising from 20% to 22%, and the mandatory VAT registration threshold for small businesses is being lowered from 60 million to 10 million rubles.

Iran said Wednesday it is in the “final stage” of drafting an agreement with Oman over the Strait of Hormuz, and US President Trump said an announcement could come within days, according to the Associated Press via NBC News. If finalised, the deal would mark the most credible step yet toward restoring normal traffic through a waterway that carries roughly a fifth of the world’s oil and gas supply — and whose disruption has been a defining driver of energy prices and inflation risk through much of 2026.

What the emerging deal actually proposes

According to regional officials briefed on the talks and cited by the Associated Press, the draft arrangement would create separate inbound and outbound shipping lanes: vessels would enter the Persian Gulf through an Iran-controlled route and exit through a route controlled by Oman. Iranian and Omani negotiators have reportedly finalised the draft and are now awaiting sign-off from Iran’s Supreme Leader.

US officials have confirmed active involvement in the process. Secretary of State Marco Rubio said Tuesday that progress had been made though no final agreement was yet in place, while Treasury Secretary Scott Bessent suggested a deal could land within a day or two, based on reporting from Al Jazeera. Iran’s foreign ministry separately described the talks with Oman as “positive.”

The sticking point that could still unravel it

The single biggest obstacle is reciprocity. Regional officials say the emerging agreement is contingent on the United States lifting its blockade of Iranian ports — a condition the Trump administration has previously resisted, having ruled out any arrangement seen as cementing Iranian control over the strait, according to NBC News. Trump himself has kept pressure on Tehran, warning Tuesday night that Iran would “get hit really hard” if it backs out of a deal again, per The Washington Times.

This would not be the first time talks have collapsed close to the finish line. The current negotiation track is explicitly tied to a broader US-Iran agreement reached in June that aimed to end hostilities and reopen the strait but ultimately fell apart, officials told the AP.

Why markets are already moving on the news

Even short of a signed deal, the mere prospect of resolution has been enough to move markets. Oil prices fell below $80 a barrel on optimism around the talks, and US equities posted a historic session Tuesday — the Dow Jones Industrial Average surged more than 900 points to close above 54,000 for the first time, with the S&P 500 also setting a fresh record, according to The Washington Times.

The scale of the disruption being priced out is significant. Before the conflict, an average of 20 million barrels a day moved through Hormuz, accounting for roughly a fifth of global oil supply, according to CNN. Commercial transit has continued at a fraction of that — an estimated 3 to 5 million barrels a day via the limited Omani traffic lane, per shipping analytics firm Marisks, cited in the same CNN report. Saudi Aramco chief executive Amin Nasser estimated global markets are currently losing more than 100 million barrels a week in constrained throughput, and warned that even an immediate reopening would take up to 18 months to fully replenish depleted inventories.

What comes next

A finalised deal would still function as an interim fix rather than a permanent settlement — regional officials briefed on the negotiations described it as a temporary solution designed to de-escalate the immediate standoff and open the door to renewed US-Iran talks on Tehran’s nuclear programme, per NBC News. For markets, that means the reopening — if it happens — is likely to reduce risk premiums without immediately restoring pre-conflict supply volumes, given the months-long replenishment timeline Aramco’s Nasser flagged.

Key takeaways

• Iran and Oman describe a draft deal on Strait of Hormuz shipping lanes as in its “final stage,” pending approval from Iran’s Supreme Leader.
• The proposed structure: ships enter the Gulf via an Iran-controlled lane, exit via an Oman-controlled lane.
• The deal is reportedly contingent on the US lifting its blockade of Iranian ports — the main remaining sticking point.
• Oil fell below $80/barrel and US stocks hit record highs Tuesday on deal optimism.
• Even with a deal, full supply restoration could take up to 18 months, according to Saudi Aramco’s CEO.

FAQs

Has the Strait of Hormuz deal been finalised? As of August 5, 2026, the deal was described as being in its “final stage,” awaiting sign-off from Iran’s Supreme Leader — not yet formally announced.

What would the deal change for shipping? It would establish separate inbound (Iran-controlled) and outbound (Oman-controlled) lanes to allow commercial vessels safe passage through the strait.

Why does the Strait of Hormuz matter for oil prices? Roughly one-fifth of global oil and gas supply historically transited the strait; its disruption has constrained an estimated 100+ million barrels a week from reaching markets, per Saudi Aramco.

Russia’s oil and gas revenue fell 22% in the first eleven months of 2025, and the pressure has only intensified since the United States imposed primary sanctions on Rosneft and Lukoil in October 2025, according to the Atlantic Council’s Russia Sanctions Database. Moscow is now rerouting exports through smaller companies to work around the sanctions, even as its military-industrial base continues expanding — Russia claims to have localized nearly 90% of drone manufacturing.

The discount on Russian crude is widening

The mechanism behind the revenue drop is the widening discount Russian oil must offer to find buyers. Urals crude traded at roughly a 10% discount to global benchmarks through much of 2024 as sanctions normalized, but that discount exceeded 15% in November 2025 after the Rosneft and Lukoil sanctions were announced, and jumped further to around 30% by year-end, according to analysis from the New Eurasian Strategies Centre. Sanctions have not meaningfully reduced the volume of oil Russia exports — production in 2025 was only 2.5% below 2021 levels — but they have reshaped how, and at what price, that oil moves.

How Moscow is compensating

Faced with declining oil revenue, the Kremlin has raised taxes across the board: increasing the income tax burden, lifting VAT from 20% to 22%, raising the profit tax from 20% to 25%, and pushing the profit tax on oil transport to 40%, according to the Atlantic Council database. Russia has also issued $2.8 billion in yuan-denominated bonds to raise financing, while corporate debt has surged 71% since 2022 as businesses absorb the fiscal strain.

Despite the tax increases, Russia’s total federal budget revenue rose only 1.6% year-on-year in ruble terms during 2025, reaching 37.3 trillion rubles ($446 billion), according to the Oxford Institute for Energy Studies. A stronger ruble through the year meant the dollar-value increase was more pronounced than the ruble figures suggest, but that currency strength itself became a fiscal headwind — the same Oxford analysis estimates rouble appreciation alone cost Russia’s oil revenue 0.6% of GDP.

What’s changed since the Rosneft-Lukoil sanctions

The picture has deteriorated further into 2026. Russia’s oil and gas cash flows dwindled to their lowest levels in years by February 2026, pushing Putin to borrow more heavily from domestic banks and raise taxes further just to keep state finances stable, according to Euronews. Analysis from RE-Russia projects that if sanctions pressure holds and oil prices continue falling, Russia’s 2026 oil and gas revenues could see a decline comparable to or exceeding the current downturn, with Urals prices potentially settling in the $40-45 per barrel range, per RE-Russia’s assessment.

The enforcement gap that keeps the war funded

Even so, sanctions remain incomplete. Since the 2022 invasion, EU countries have paid an estimated €220 billion for Russian coal, oil, and gas — roughly 20% of Russia’s total energy earnings during that period — even as the bloc has simultaneously imposed restrictions, according to the International Centre for Defence and Security. That analysis argues Western sanctions enforcement, not sanctions design, remains the binding constraint on their effectiveness.