Higher oil prices carry a sting in the tail for Russia — resurgent inflation

A windfall from Middle East war offer Moscow breathing room, but rising costs are rippling through the wider economy. A customer with a dog inspects a refrigerated case with sausages during a visit to a supermarket of the Pyaterochka chain of stores on April 8, 2026 in Moscow, Russia. (Contributor/Getty Images) Prefer on Google by Toby Woodall By pushing up oil prices, the war in Iran is offering Russia a short-term revenue boost — but at the cost of reigniting inflation, complicating the central bank's efforts to stabilize an already strained wartime economy. Before the U.S. and Israel launched strikes across Iran at the end of February, a slump in oil prices had been pressuring one of the Kremlin’s most important sources of revenue. With shipping through the narrow Strait of Hormuz — which handles about a quarter of the global seaborne oil trade — facing major disruption, prices jumped from $70 per barrel to over $100. Although the price of oil has since fallen back below $100, it remains 50% higher than before the war in Iran — supporting Russian revenues, at least for now. U.S. President Donald Trump has claimed in recent days that the conflict is close to a conclusion, though Tehran remains defiant in its public remarks. Prices will likely remain elevated until a lasting peace is established and the uncertainty over the strait dissipates. But the effect on the wider Russian economy looks far more fraught. Inflation in Russia — which had begun to slow at the beginning of this year — is picking up again. Data from the country’s statistical agency Rosstat shows price growth accelerated to 5.95% in the first week of April, after a dip to 5.86% in March. Just weeks earlier, the Central Bank of Russia lowered its benchmark interest rate by 50 basis points to 15% in late March, citing a decline in inflation in February to 5.9%. "Events in the Middle East pose additional inflationary risks for us, the scale of which will be assessed in April," central bank advisor Kirill Tremasov said, warning that higher energy and commodity prices could increase inflationary pressures globally. For the central bank, any uptick in inflation raises the uncomfortable prospect of delaying — or even reversing — a cycle of interest rate reductions that began in the summer against the backdrop of increasingly vocal discontent from industry and households. The pressure is already visible in public sentiment. In March, inflation expectations rose to 13.4%, the highest since August, according to a survey on behalf of the central bank, while public perceptions of price growth over the last 12 months reached 15.6% — far above official figures, and reflecting the rising cost of essentials such as food and utilities. By the second half of 2026, the bank had expected underlying inflation to moderate to its target level of 4%. "Even with the recent rate cut, the real interest rate is still extremely high, 8-9%," economist Vasily Astrov of the Vienna Institute for International Economic Studies told the Kyiv Independent. "(The high rate) is arguably the main reason for the current stagnation, and I can well imagine that the central bank will now become more 'dovish,' after Putin personally recently voiced concern over the pace of economic growth — for the first time in fact." In this pool photograph distributed by the Russian state agency Sputnik, Russia's President Vladimir Putin chairs a meeting on economic issues in Moscow on April 15, 2026. (Alexander KAZAKOV / POOL / AFP via Getty Images) While President Vladimir Putin continues to support the bank’s approach in his public remarks, he called the high interest rate "a very controversial matter" during his annual 'Results of the Year' conference in December — and appears to be growing increasingly frustrated by the faltering economy. The conspicuous gap between official measures of inflation and the soaring bills actually faced by households — especially for food, medicines, and utilities — was a topic Putin was forced to field again and again during the conference. Rosstat is widely suspected of underreporting inflation rates, which do not reflect the decline in the quality of goods available as the economy becomes more isolated. Meanwhile, economic growth slumped to 1% last year — from 5% in 2024 — and is forecast to remain there in 2026. Next year and beyond, growth is expected to fall to just 0.5% as the boost from higher commodity prices fades. As such, the central bank remains under pressure to reduce rates, which reached a peak of 21% in October 2024 and stayed at that level until June 2025 — raising borrowing costs for firms and households. Real wage growth has also slowed markedly in recent months, despite a shortage of workers, as the initial boost from the war has faded. 2025 saw real incomes increase at half the rate of the previous year, and a recent survey suggests this will also be the case in 2026. The reported rise in average monthly salaries to as much as 100,360 rubles ($1,319) last year reassures few Russians, who are acutely aware of the exorbitant levels of inequality that skew such averages. For those reliant on benefits — around a third of the Russian population — the picture is far bleaker. From April, pensioners , the largest group of recipients, are set to receive 16,500 rubles per month on average, about $216.82, a rise of 6.8%. Meanwhile, little help is forthcoming from the government, which has reportedly cancelled budget cuts in light of the anticipated windfall from higher commodity revenues — though this has not been confirmed. The effect of higher energy prices as a result of the war in Iran is also spreading through the economy. Farmers, already dealing with high fuel costs, are facing further pressure from rising fertilizer prices. In response to higher domestic fuel prices, the government reintroduced a ban on exports of petrol from April, as the crop sowing season gets underway. The Strait of Hormuz handles an even greater proportion of global fertilizer supplies than oil, accounting for as much as 30%. Although Russia is itself a major exporter, fertilizers too are a globally traded commodity, and priced accordingly. As a result, farmers may face a double blow from higher costs for energy and fertilizer — just as reports emerge of multiple outbreaks of cattle illnesses in Siberia . For now, the exchange rate is the main factor affecting Russian farmers, grain reporter Masha Belikova of the Fastmarkets Agricensus price reporting agency told the Kyiv Independent. With most commodity exports sold in foreign currency, a weaker ruble benefits exporters, whose costs are mainly priced in the domestic currency. With the exchange rate relatively flat in recent months, food prices will likely go largely unscathed for the time being — though imports of fruit and vegetables may face more pressure given logistics account for a greater proportion of their prices, Andrey Sizov, the head of agriculture consultancy Sovecon, told the Kyiv Independent. But summer will ease the pressure with the domestic harvest of fruit and vegetables, Sizov added. The implications of the crisis in the Middle East, however, go beyond just energy and agriculture. Since 2022, sanctions have forced Russia to turn to the region for many of the goods it previously imported from the West — with the UAE emerging as a major hub for "parallel imports," meaning those without the trademark owner’s permission. Trade between the UAE and Russia ballooned to as much as $12 billion last year, making it one of Moscow’s most important trading partners. The country is not only an important source of consumer goods, such as clothes and mobile phones, but industrial equipment — which could raise costs further for businesses already operating under tough conditions. The Kremlin has been confronted in recent years by just how high the unanticipated costs of a short military operation gone awry can be. Whatever the extent of any Russian windfall from the crisis in the Middle East, the oil industry — and economy more widely — face steady structural decline . Having seemingly taken the strong economic growth of the early years of his presidency for granted, Putin is left with few options as intense war spending — which he frames as existential — leaves an already ailing economy increasingly vulnerable to shocks, including any end to the war in Ukraine. Toby Woodall is a freelance journalist covering the former Soviet Union.