Oil as a key to global stability? Could Trump lower world prices to help end the war in Ukraine?
Last week, U.S. President Donald Trump stated that the key to ending Russia's war against Ukraine lies with the alliance of oil-producing nations, OPEC+. In his view, a decrease in global oil prices would impact Moscow's revenues and compel Vladimir Putin to come to the negotiating table.
Details on what Trump is proposing and whether he can persuade Saudi Arabia to crash oil prices can be found in the article by RBK-Ukraine.
Trump Calls for Oil Price Crash: What We Know
Donald Trump announced his intention to pressure OPEC+ to increase oil production and lower prices during the World Economic Forum in Davos on Thursday.
"If prices were to drop, the war (Russia's against Ukraine, - ed.) would end immediately... They should have done this a long time ago. They bear significant responsibility, to some extent, for what is happening," he remarked, addressing a leading member of the oil alliance, Saudi Arabia.
Trump's statement came after a phone call with Saudi Crown Prince Mohammed bin Salman. Reports indicate that the prince promised to expand investments and trade by $600 billion over the next four years. The U.S. president added that he would ask to increase this amount to $1 trillion.
On Friday, he reiterated his call. "One way to quickly stop (the war, - ed.) is for OPEC to stop making so much money and lower oil prices," he stated during a trip to hurricane-affected North Carolina.
Trump's team had previously indicated that they view oil prices as a lever to pressure Putin. His future national security advisor, Mike Waltz, argued: if the price drops below $50 per barrel, Russia will become a "gas station with a nuclear bomb."
Special envoy Kit Kellogg, who deals with issues of ending the war, acknowledged in an interview with Fox News that even by helping Ukraine achieve victories on the battlefield, it would not be possible to compel Putin to peace. In his opinion, a solution could be to reduce oil prices to $45.
It is worth noting that the U.S. and its G7 allies have set a "price cap" on Russian oil at $60. However, Moscow has managed to maintain a stable flow of revenues primarily through China and India, which are buying oil at discounts and, in some cases, circumventing the restrictions.
The Ukrainian side has long insisted on tightening measures against Russian oil. Trump's signals have been met with enthusiasm in Kyiv. As stated by the head of the President's Office, Andriy Yermak, further lowering the "price cap" will pave the way to global security, and the sanctions group proposes to set it at $30 per barrel. He believes this would significantly diminish the Kremlin's ability to finance the war.
However, pressuring OPEC+ may prove to be a challenging task, according to the Associated Press. This format emerged in 2016 when Russia (along with several other countries) joined forces with Saudi Arabia and other OPEC cartel members. In the expanded alliance, Moscow and Riyadh are the leading oil producers. The emergence of OPEC+ was largely a response to the sharp decline in prices due to U.S. shale oil production. The United States is not a member of either OPEC or OPEC+.
Market and OPEC's Response to Trump's Statement
Following Trump's remarks in Davos, global prices fell. Futures for West Texas Intermediate crude dropped below $75 per barrel, while the benchmark Brent fell to $78.
The Organization of the Petroleum Exporting Countries (OPEC) and its OPEC+ partners have been regulating prices for many years by limiting production. The group of producers has spare capacity of several million barrels per day that they could potentially bring to market. They previously agreed to gradually increase production by 2.2 million barrels per day, starting in April 2025.
Trump's statements have restrained the price growth that was anticipated following the introduction of new U.S. sanctions against Russia by the outgoing Biden administration. This resulted in oil beginning its fifth consecutive losing session, partly triggered by threats from the new U.S. president to impose tariffs on goods from China, which could weaken demand in the country, the world's largest oil importer.
"This year, the oil markets are facing a new variable - the 'Trump option' on energy prices", quoted Bloomberg the head of macroeconomic trading at Buffalo Bayou Commodities (a trading company in Houston, USA), Frank Monkam.
As for cartel representatives, there have been few official statements so far. At the forum in Davos, Saudi Arabia's Minister of Economy Faisal Al-Ibrahim stated that Riyadh is interested in long-term stability.
"The positions of the kingdom and OPEC are aimed at the long-term stability of the market to ensure adequate supply for rising demand, including from the U.S. and artificial intelligence," he said.
OPEC+ claims it is not focused on current prices and has its own plan to increase production starting in April 2025. "I think this already aligns with OPEC's easing policy," responded a delegate from the group in a comment to Reuters.
The United Arab Emirates (UAE) and Iraq are insisting on a prompt increase in production, as they have invested significant resources in expanding their capacities. The question is whether producer countries are likely to be interested in a sharp price crash. Most OPEC members rely heavily on oil revenues, and their budgets are based on a price of $80 per barrel or higher.
However, it is possible that OPEC+ will reconsider its policy at the meeting on February 3. Based on previous practices, a decision on increasing the April production level is expected around early March, according to Reuters.
Will OPEC+ Crash Prices to End the War in Ukraine?
The tactic of intervening in the oil market is not new for Trump. During his first presidential term, he repeatedly labeled prices as high and urged OPEC+ to lower them. However, in March 2020, at the peak of the COVID-19 pandemic, when prices were at multi-year lows, he demanded a cut in production by 10 million barrels per day.
At that time, disagreements between Saudi Arabia and Russia led both countries to flood the market with excess supply. As a result, U.S. producers were impacted, leading to a series of bankruptcies, mergers, and layoffs. The two-month price war was accompanied by Trump's ultimatums, and OPEC+ agreed to cut production, which helped raise prices by 20%.
It remains unclear whether the new request from the U.S. president will be met. If so, much depends on Saudi Arabia. This country has historically been known for its ability to increase or decrease production to deal with competitors or punish defiant OPEC members. For example, at the end of 2024, Riyadh threatened to take action due to quota violations by countries such as Iraq and Kazakhstan.
Oil industry expert and founder of the consulting firm Macro-Advisory, Chris Wefer, doubts that Trump will persuade the Saudis and other OPEC members to increase oil production to pressure Putin over Ukraine.
"It is unlikely that Saudi Arabia, the UAE, or others will want to engage in a political movement against Russia. OPEC producers are still angry about the complete disregard from Washington when the shale revolution increased American crude oil exports, taking away their market share," he believes.
On the other hand, despite Saudi Arabia distancing itself from the U.S. in recent years, Trump still has strong ties with the country's leadership. And the discontent of other OPEC members who exceed their quotas may play to Riyadh's advantage, suggests David Oxley, chief economist for climate and commodities at Capital Economics.
"This unequivocal invitation from Trump could provide the cover Saudi Arabia needs to open the oil floodgates," he added.
By publicly pressuring the Saudis and the cartel, the new U.S. president is embarking on a risky gambit. For instance, his predecessor, Joe Biden, criticized human rights violations in Saudi Arabia early in his term, after which, at the onset of Russia's full-scale war against Ukraine, official Riyadh rejected calls to increase oil flows.
When asked why Trump might succeed where Biden failed, his press secretary, Caroline Livitt, stated that the previous administration did not deliver on much of what was promised, and "President Trump is a man of his word, and everyone will see this soon."
It is possible that Riyadh and other countries may want to respond to calls from Washington, but not immediately, believes Kevin Book, managing director of research firm ClearView Energy Partners LLC. According to him, it all depends on what Trump demands and what pressure he will exert.
"What Biden asked for should have divided the two largest players in OPEC+. Essentially, this is still on the agenda. It was difficult then, and it will be difficult now," he added.
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