Trump's oil price gambit: Saudi ties tested in ukraine peace bid

- I will ask Saudi Arabia and OPEC (an organisation of countries responsible for almost 40 percent of global oil production - editor's note) to lower the oil price. It must come down. The war has to stop - Trump spoke at the economic forum in Davos. - If the price drops, the conflict between Russia and Ukraine will end immediately. Currently, the price is high enough for this war to persist. The oil price must be lowered; this war must be concluded - he declared.

This may, however, be challenging.

As explained by Barrons, the current rate of a barrel of Brent crude on global markets is £61, and Russian Urals oil - nearly £57. 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, which was one of the lowest figures in recent years. In August alone, export revenues fell by £1.2 billion compared to July, reaching £11.9 billion. Nonetheless, these are still substantial sums.

The price of a barrel would need to decrease significantly for the Russians to feel its effects. In 2024, the average price of Urals oil was £53-£56 - just enough for the Russians' budget, and they did reasonably well. The G7 countries and the EU set a price cap on Russian oil at £48, 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 explains that oil extraction costs in Russia are low, around £12 per barrel in the main fields. For the Kremlin to feel an impact on the oil market, the price of a barrel would need to decrease to £23-£31.

- Lowering the price to £39 won't change much. Moreover, if the Saudis lower prices, the Americans must do the same, as they sell it to Europe. Would this be an action in the interest of the USA, which Trump frequently discusses? I understand his intentions; he sends a positive signal, knowing that one of the most critical elements of Russian stability is revenue from the oil sector. However, I am not convinced that he can find a solution that satisfies everyone - assesses Dr Kardaś.

Our interlocutor points out that Trump is determined and unpredictable in his modus operandi, so he may pressure or entice Saudi Arabia in various ways. But on the other hand, since 2016, Russia has been cooperating with OPEC countries (which include Saudi Arabia) under OPEC+ and has been doing well.

- In 2020, during COVID, Russia and Saudi Arabia engaged in a price conflict, but they retreated after a few weeks. It was unprofitable for them - adds Dr Kardaś.

Both countries announced they would flood the market with oil to increase their influence. Prices collapsed and in April 2020 were as low as £23 per barrel. As a result, members of the OPEC+ cartel agreed to limit oil production to raise prices. Since then, they have not even approached £23 again.

- Oil prices have been very unstable lately (in September 2024, they fell slightly below £55, and in January 2025, they exceeded even £62 - editor's note). If OPEC complies with Trump's demands, the price of this resource will fall further. However, the group will be reluctant to take such action, as the price is already below the expectations of most OPEC members who need the raw material 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 regarding lowering oil prices and imposing sanctions on Russia if it does not end the war in Ukraine, aim to stir up the elites.

Russian experts remind us that Trump previously threatened to hit the oil market, but this only led to short-term price reductions, just like now. However, the Kremlin plays this well as it fears increased production in other countries, particularly those outside OPEC. More oil is already being extracted by Canadians and Brazilians, affecting the war budget - Rudnik explains in an interview with Money.pl.

In his opinion, Trump also wants to "throw a spanner in the works" at OPEC and incite conflicts that already exist there. - Moscow has good relations with the Saudi court, but there were tensions in 2023. Russia misled OPEC by extracting much more oil than it committed to, which directly impacted the Saudis as they lost out. Trump might exploit this - adds Rudnik.

Trump does not hide his close contacts with the Saudis. In 2017, Saudi Arabia was his first foreign visit after taking office in his first term, traditionally when US presidents head to the UK.

- They agreed to purchase our products worth £349 billion - Trump recalled a few days ago, reflecting on that visit. Of this amount, the Saudis were to allocate £85 billion for American weapons, including Black Hawk helicopters.

Now, an even more significant flow of money will come from the Saudi court. Crown Prince Mohammed bin Salman confirmed that the kingdom intends to expand investments and trade with the United States by £466 billion over the next four years, "possibly even more."

- I will address the crown prince, who is, incidentally, a fantastic man, to round it up to a trillion - Trump said during a speech in Davos. Following this declaration, he mentioned the Saudis and OPEC lowering oil prices.

Trump feels comfortable in Saudi Arabia. Before his presidency in 2017, the Trump Organization - a conglomerate involved in private investments in 500 economic entities, currently managed by the politician's sons - signed an agreement related to 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 £3.5 million. The Saudis are also set to invest £1.6 billion in Jared Kushner's real estate, Trump's son-in-law, in Serbia and Albania.

A significant warming in Arab-American relations is expected after Trump's return to the White House. Previous President Joe Biden accused the Saudis of the murder of Saudi correspondent Jamal Khashoggi, whose body was dismembered in the Saudi consulate in Istanbul. This was not well received by the royal family.

Americans imposed sanctions on 17 Saudis involved in the murder after this crime but spared Crown Prince and Prime Minister Mohammed bin Salman because – as Biden stated – Americans cannot punish the leaders of allied countries. Therefore, even under Biden, Saudi Arabia was included among such countries.

- Trump's second term will undoubtedly be a different presidency. He is better prepared, aware of systemic constraints, but I would be cautious in accepting his declarations. In his first term, he also conducted rhetoric of quick and spectacular actions. He talked with Kim Jong-un but achieved nothing. However, I do not exclude that Trump will tempt the Saudis, considering their mutual contacts - assesses Dr Kardaś.

However, the Saudis need money from oil for mega-projects in the Vision 2030 development strategy. They are building, among others, the new supercity NEOM and the Qiddiya amusement park. They are also undergoing an energy transition, assuming that by 2030, 50 percent of energy will come from renewable sources.

The Arabs are pleased with Trump's return, as expressed in Davos by Saudi Finance Minister Mohammed Al-Jadaan, emphasising the strong economic and diplomatic ties between Riyadh and Washington. He also discussed "major economic reforms" and "prosperity," in which the Saudis wish to participate.

- Trump withdrew from the climate agreement, which the Saudis welcomed with satisfaction. No one will press them to limit CO2 emissions during oil extraction. However, I think they will realistically assess the declarations of price reductions - believes Dr Kardaś.

Moscow is closely monitoring everything. The Kremlin may already be planning how to respond to the potential tightening of cooperation between the US and Saudi Arabia.

- They did not react when Biden, upon departure, imposed sanctions on over 100 ships from the shadow fleet. However, the Kremlin can respond by influencing the export of enriched uranium to the USA. American nuclear reactors rely on Rosatom's supply chain. They undoubtedly have fuel reserves, but they would need to improvise - concludes Rudnik.

Piotr Bera