Editor's Note: This is a complimentary research note from Hedgeye Energy Policy analyst Joe McMonigle.
President Trump's National Security Adviser John Bolton is in Moscow today to meet with Russian counterparts on a variety of issues. One of the top issues on Bolton's agenda is to warn Russia against attempts to launder and resell Iranian crude through some oil-for-goods trading program.
Russia and Iran have openly discussed such an arrangement for the past several months, and it has been implemented in the past with limited success. So far, US sanctions on Russia have largely been targeted and not affected oil production or even the larger economy.
But attempts to launder Iranian crude through an oil-for-goods program in which the oil gets resold into the global market would certainly violate US sanctions on Iran and would come with major consequences. These oil sanctions would bite, and in the end, we believe Russia will not think it will be worth it. See more on this issue and my quotes in this Financial Times article from Sunday.
Russia is a key ally of Iran, and the two nations share many geopolitical priorities in the region. But Russia's self-interest as an oil producer has clouded and even strained this relationship. Russia's recent cooperation with Saudi Arabia on increasing oil production this year has rankled the Iranian government. One top Iranian official was quoted as saying Russia had "stabbed us in the back" with its cooperation with the Saudis to hike production and take away market share from Iran.
Officially, Russia is opposed to the US pullout of the Iran nuclear deal and unilateral reimposition of oil sanctions. But a key contributing factor in the rise of oil prices over the past couple months is due to impending US sanctions on Iranian oil. While Russia might not support US sanctions, it stands to benefit from rising prices.
Congress is working on legislation that would add more sanctions on Russia but we continue to see them as being targeted in nature. It is highly unlikely that there would be any US sanctions affecting broad economic sectors in Russia, including the oil sector. As explained above, it is one of the reasons we think Russia will not cross US sanctions on Iran.
Rising oil prices will be good for the Russian economy and stock market. See more on this about this issue and my quotes in this excellent Simon Constable column in Forbes last week: "Time To Bet on Putin? How The Iranian Sanctions Will Boost Russian Stocks."
