Oil as key to peace: Could Trump crash global prices to end war in Ukraine

Contents

• Trump asks to collapse oil prices
• How oil market and OPEC react to Trump's statement
• Will OPEC+ go for a price crash to end the war in Ukraine?

Trump asks to collapse oil prices

Donald Trump announced his intention to put pressure on OPEC+ to increase oil production and lower prices on Thursday at the World Economic Forum in Davos.

“If prices came down, the war (between Russia and Ukraine - ed.) would end immediately... They should have done it long ago. They bear a lot of responsibility, to some extent, for what is happening,” he said, referring to Saudi Arabia, a leading member of the oil alliance.

Trump's statement came after a phone call with Saudi Crown Prince Mohammed bin Salman. According to reports, the prince promised to expand investment and trade by $600 billion over four years. The US president added that he would ask to increase the amount to $1 trillion.

On Friday, he repeated the call. “One way to stop it (the war - ed.) quickly is for OPEC to stop making so much money and drop the price of oil,” he said during a trip to hurricane-ravaged North Carolina.

Trump's team has previously made it clear that it sees oil prices as a lever of pressure on Putin. His national security adviser, Mike Waltz, has argued that if the price falls below $50 per barrel, Russia will become “a gas station with a nuclear bomb.”

Special envoy Keith Kellogg, who is in charge of ending the war, admitted in an interview with Fox News that even if they helped Ukraine with victories on the battlefield, it is impossible to force Putin to peace. In his opinion, the way out could be a drop in oil prices to $45.

The United States and G7 have set a price cap for Russian oil at $60. However, Moscow manages to maintain a steady stream of revenue mainly thanks to China and India, which buy oil at discounts and in some cases circumvent the restrictions.

The Ukrainian side has long insisted on tougher measures against Russian oil. And Kyiv is responding to Trump's signals with enthusiasm. According to the head of the Presidential Office, Andriy Yermak, further lowering the price cap will provide a path to global security, and the sanctions group proposes to fix it at $30 per barrel. The consequence will be a collapse of the Kremlin's ability to finance the war, he believes.

But putting pressure on OPEC+ may not be an easy task, the Associated Press writes. This format appeared in 2016 when Russia (and several other countries) joined Saudi Arabia and other members of the OPEC. In the expanded alliance, Moscow and Riyadh are the leading oil producers. The emergence of OPEC+ was generally a response to the sharp drop in prices due to shale oil production in the United States. The US is not a member of either OPEC or OPEC+.

How oil market and OPEC react to Trump's statement

After Trump's speech in Davos, world prices fell. West Texas Intermediate crude futures fell below $75 per barrel. And the benchmark Brent crude fell to $78.

The Organization of the Petroleum Exporting Countries (OPEC) and its partners in OPEC+ have been regulating prices by limiting production for many years. The group of producers has a spare capacity of several million barrels per day that they can potentially put on the market. Earlier, they agreed to gradually increase production by 2.2 million barrels per day starting in April 2025.

Trump's remarks are restraining the price increase that was planned after the introduction of new US sanctions against Russia by the Joe Biden administration. This led to oil's fifth consecutive losing session, partly caused by the new US president's threats to impose tariffs on goods from China, which could weaken demand in the country that is the world's top oil importer.

“Oil markets are now facing the introduction of a new variable this year, that is the ‘Trump call option’ on energy prices,” Bloomberg quoted Frank Monkam, head of macroeconomic trading at Buffalo Bayou Commodities (a Houston-based trader).

There have been few official statements from OPEC so far. At the Davos forum, Saudi Arabia's Minister of Economy Faisal Alibrahim said that Riyadh is interested in long-term stability.

“The kingdom's position, OPEC's position, is all about long-term market stability to make sure that there's enough supply for the growing demand, including from the US and for artificial intelligence,” he said.

OPEC+ says it is not focused on current prices and has its own plan to increase production from April 2025. “I think this is already in line with OPEC's easing policy,” one of the group's delegates told Reuters.

The United Arab Emirates (UAE) and Iraq are pushing for an early increase in production as they have invested heavily in expanding their capacity. The issue is that the producing countries are hardly interested in a sharp price collapse. Most OPEC members are heavily dependent on oil revenues, and their budgets are based on a price of $80 per barrel or more.

However, OPEC+ may revise its policy at its February 3 meeting. Based on previous practice, a decision to raise the April production level is expected around the beginning of March, Reuters writes.

Will OPEC+ go for a price crash to end the war in Ukraine?

The tactic of interfering in the oil market is not new to Trump. During his first presidential term, he repeatedly called prices high and called on OPEC+ to reduce them. Yet, in March 2020, at the peak of the COVID-19 pandemic, when prices were at their lowest in several years, he demanded a 10 million barrels per day production cut.

At that time, disagreements between Saudi Arabia and Russia led to both countries flooding the market with oversupply. As a result, US producers in particular suffered, which led to a number of bankruptcies, mergers, and layoffs. The two-month price war was accompanied by Trump's ultimatums, and OPEC+ agreed to cut production, which helped to raise prices by 20%.

It is not yet clear whether the US president's new request will be granted. If they do, much depends on Saudi Arabia. This country has historically been known to increase or decrease production to deal with competitors or punish recalcitrant OPEC members. For example, at the end of 2024, Riyadh threatened to take action because of the excess of production quotas by countries such as Iraq and Kazakhstan.

Chris Weafer, an oil industry expert and founder of Macro-Advisory, doubts that Trump will persuade the Saudis and other OPEC members to increase oil production to put pressure on Putin over Ukraine.

“It is most unlikely that Saudi Arabia, the UAE, or the other OPEC producers will either want to engage in such a political move against fellow OPEC+ member Russia or to take any action which would result in them losing export earnings and giving a bigger market share to US producers. OPEC producers are still angry at the total disregard from Washington when the shale revolution boosted U.S. crude production and exports, taking market share from them,” he said.

On the other hand, even though in recent years Saudi Arabia has drifted away from the United States, Trump has maintained strong ties with the country's leadership. And dissatisfaction with other OPEC members exceeding their quotas could play into Riyadh's hands, suggests David Oxley, chief climate and commodities economist at Capital Economics.

“This explicit invitation from Trump might be the cover that (Saudi Arabia) needs to open the spigots” he added.

By putting public pressure on the Saudis and the OPEC, the new US president is launching a risky gambit. For example, his predecessor, Joe Biden, criticized human rights violations in Saudi Arabia at the beginning of his term, and at the beginning of Russia's full-scale war against Ukraine, official Riyadh rejected calls to increase oil flows.

When asked why Trump could succeed where Biden failed, his spokeswoman Karoline Leavitt said that the previous administration did not realize much of what it promised, and “President Trump is a man of his word, and everyone will see that soon.”

Riyadh and other countries may want to respond to the calls from Washington, but not immediately, said Kevin Book, managing director of ClearView Energy Partners LLC, a research company. According to him, it all depends on what Trump demands and what pressure he exerts.

“What Biden was essentially asking for was going to divide the two biggest players in OPEC+ and that’s essentially what’s on the table right now, too. It was challenging then. It would be challenging now,” he added.

Sources: Reuters, Bloomberg, and Associated Press.