Trump's complex oil diplomacy tests Saudi ties and Ukraine peace

- I will ask Saudi Arabia and OPEC (Organization of the Petroleum Exporting Countries, responsible for nearly 40% of global oil production - editor's note) to lower the price of oil. It needs to be reduced. The war must end - Trump mentioned during the economic forum in Davos. - If the price drops, the war between Russia and Ukraine could end immediately. Currently, the price is high enough for this war to persist. The oil price must be lowered, the war must be ended - he declared.

However, this may not be straightforward.

As explained by Barrons, the current price of a barrel of Brent crude on world markets is $105 CAD, and Russian Urals oil - nearly $98 CAD. At this level, "Russia earns enough to sustain the war." According to the International Energy Agency, last year, Russia exported about 7 million barrels daily, one of the lowest figures in recent years. In August alone, export revenues fell by $2 billion CAD compared to July, reaching $20 billion CAD. However, these figures still represent significant sums.

The price of a barrel would have to drop significantly for the Russians to feel it. In 2024, the average price of Urals oil was $91 - $95 CAD - just enough for the Russians to budget effectively. The G7 countries and the EU set a price cap on Russian oil at $81 CAD, but thanks to an extensive shadow fleet network, Moscow accessed external markets, bypassing restrictions - explains Dr. Szymon Kardaś of the European Council on Foreign Relations in an interview with Money.pl.

The expert notes that the costs of oil extraction in Russia are low, reaching about $20 CAD per barrel in the main fields. For the Kremlin to feel an impact, the price would need to drop to between $40 and $54 CAD per barrel.

- Lowering the price to $67 CAD won't change much. Moreover, if the Saudis cut prices, the Americans might have to follow suit, as they also sell to Europe. Would this align with the USA's interests, which Trump frequently references? I understand his intentions and the positive signal he sends, recognizing that one of Russia's key stabilizing factors is revenue from the oil sector. However, I remain unconvinced that he can devise a solution that satisfies everyone – assesses Dr. Kardaś.

Our interlocutor points out that Trump is determined and unpredictable in his approach, so he may apply pressure or offer incentives to Saudi Arabia in various ways. On the other hand, since 2016, Russia has been cooperating with OPEC countries (which includes Saudi Arabia) under OPEC+ and has been successful.

- In 2020, during COVID, Russia and Saudi Arabia entered a price conflict, but they withdrew after a few weeks as it wasn't profitable – adds Dr. Kardaś.

Both countries announced they would flood the market with oil to extend their influence, leading to a price collapse as low as $40 CAD per barrel in April 2020. Consequently, OPEC+ members agreed to limit oil production to raise prices. Since then, prices have not approached $40 CAD again.

- Oil prices have been very unstable lately (in September 2024, they dipped slightly below $95 CAD, and by January 2025, exceeded $109 CAD - editor's note). If OPEC adheres to Trump's demands, prices may fall further. However, the group is likely to be hesitant to take such action, as prices already fall under the assumptions of most OPEC members who require the revenue to finance their budgets - Leo Mariani, an analyst at Roth MKM, tells Barrons.

Filip Rudnik, an analyst in the Russian Team at the Centre for Eastern Studies, notes that Trump’s threats to lower oil prices and impose sanctions on Russia if the conflict doesn't end are intended to unsettle the elites.

Russian experts remind that Trump previously threatened the oil market, but it resulted only in short-term price drops, similar to the current situation. The Kremlin plays its cards well, wary of increased production in other countries, particularly outside OPEC. Canadians and Brazilians are already boosting oil extraction, impacting the war budget - Rudnik explains in an interview with Money.pl.

In his opinion, Trump also seeks to "throw a wrench in the works" at OPEC and stir up existing conflicts. - Moscow enjoys a solid relationship with Saudi Arabia, but there were tensions in 2023. Russia extracted much more oil than agreed, impacting the Saudis as they experienced losses. Trump might leverage this situation - adds Rudnik.

Trump does not hide his close contacts with the Saudis. In 2017, Saudi Arabia was his first foreign visit following his first-term inauguration, a break from the tradition of U.S. presidents heading to the UK.

- They agreed to purchase our products worth $600 billion CAD - Trump recollected a few days ago, reflecting on that visit. Of this amount, the Saudis were to allocate $146 billion CAD for American weapons, including Black Hawk helicopters.

Now, an even larger financial flow is anticipated from Saudi Arabia. Crown Prince Mohammed bin Salman confirmed that the kingdom plans to expand investments and trade with the United States by $800 billion CAD over the next four years, "possibly even more."

- I will address the crown prince, who is, by the way, a fantastic man, to round it up to a trillion - Trump stated during a speech in Davos. It was following this declaration that he mentioned the Saudis and OPEC lowering oil prices.

Trump feels comfortable in Saudi Arabia. Before taking office in 2017, the Trump Organization - a conglomerate involved in private investments in 500 economic entities, now managed by the politician's sons - signed a deal for a luxury skyscraper project in Saudi Arabia. In 2024, the construction of two Trump Towers was announced - in Jeddah and Riyadh.

As far back as 2001, Trump sold the entire 45th floor of Trump Tower in New York to Saudi Arabia for $6 million CAD. The Saudis are also set to invest $3 billion CAD in Jared Kushner's real estate, Trump's son-in-law, in Serbia and Albania.

Significant warming in Arab-American relations is anticipated following Trump's return to the White House. Trump’s predecessor, Joe Biden, accused the Saudis of the murder of Saudi journalist Jamal Khashoggi, who was murdered and dismembered in the Saudi consulate in Istanbul. This did not sit well with the royal family.

The U.S. imposed sanctions on 17 Saudis linked to the murder following the crime but spared Crown Prince and Prime Minister Mohammed bin Salman because – as Biden stated – the U.S. does not punish leaders of allied countries. And Saudi Arabia was considered one of those countries, even under Biden.

- Trump's second term will likely differ. He is better prepared, aware of systemic constraints, but I would be cautious about accepting his declarations. During his first term, he also pursued rhetoric involving quick and spectacular actions. He engaged with Kim Jong-un but achieved little. However, I don't rule out Trump enticing the Saudis, considering their mutual contacts – assesses Dr. Kardaś.

However, the Saudis require oil revenue for mega-projects in their Vision 2030 development strategy. They are constructing projects like the new supercity NEOM and the Qiddiya amusement park. They are also undergoing an energy transition, aiming for 50% of energy to come from renewable sources by 2030.

The Arabs are pleased with Trump’s return, as heard in Davos from Saudi Finance Minister Mohammed Al-Jadaan, who emphasized strong economic and diplomatic ties between Riyadh and Washington. He also spoke of "major economic reforms" and "prosperity" in which the Saudis wish to participate.

- Trump withdrew from the climate agreement, much to the Saudis’ satisfaction. No one will press them to limit CO2 emissions during oil extraction. However, I think they will take a realistic view of the declarations of price cuts - believes Dr. Kardaś.

Moscow is monitoring developments. The Kremlin might already be planning responses to potential increased cooperation between the U.S. and Saudi Arabia.

- They did not react when Biden, upon departing, imposed sanctions on over 100 ships about the shadow fleet. However, the Kremlin can influence the export of enriched uranium to the U.S. American nuclear reactors rely on Rosatom's supply chain. Although they have fuel reserves, they would need to improvise - summarizes Rudnik.

Piotr Bera