Trump aims to crash oil prices. How feasible is this and what impact will it have on Russia?
The primary goal of this move is to reduce fuel prices for consumers in the United States. However, the decline in oil prices will impact not only the situation in the U.S. but also the global market, particularly Russia, which finances its war against Ukraine with money from hydrocarbon exports.
Is Trump planning to fulfill his campaign promise? What needs to be done for this, and what could the consequences be for the Kremlin's military machine?
Drill, baby, drill!
In one of his interviews ahead of the elections, discussing his vision for the future of U.S. energy, Trump stated, "We will drill, baby! Drill." This phrase, originally "Drill, baby, drill," has arguably become the most prominent promise from the Republican regarding the country’s future energy policy.
Overall, he promised to expand oil and gas programs to "unlock domestic energy resource production, reduce the rising prices of gasoline, diesel, and natural gas, support the energy security of U.S. allies worldwide, abolish the socialist 'Green New Deal,' and ensure that the States are never again under the control of foreign energy suppliers."
However, political campaign promises often remain just words after victory.
Is the future U.S. president planning to influence energy prices? According to Volodymyr Dubovyk, director of the Center for International Studies, Trump will likely attempt to lower oil prices to reduce fuel costs, as this is a very pressing issue for most Americans.
"Trump has repeatedly stated that prices rose during Biden's presidency, and he will be the leader under whom they will fall. Then he can fulfill his promise and tell Americans: 'See, you are already living better than under Biden.' This will help him consolidate the support he just received," Dubovyk believes.
This policy will also have implications for the Russian oil sector and the budget revenues of the aggressor country. "At oil prices of $100 per barrel, Putin can wage war, but at $40, this is no longer possible,"Trump emphasized during a speech at the Economic Club of New York in September 2024.
Is it possible to reduce the oil price to such a level, and what needs to be done for that?
Oil at $40: How realistic is this?
Experts surveyed by EP believe this scenario is realistic, but the U.S. cannot achieve it alone. Significant price reductions require the support of other major oil producers. Who is on this list?
According to data from the Energy Information Administration, the U.S. has been the largest oil producer over the past six years, with an average output of 12.9 million barrels per day. A record 13.3 million barrels was recorded in December 2023. Russia follows in second place with 10.1 million barrels, and Saudi Arabia is third with 9.7 million barrels.
1 In 2023, the three largest players accounted for 40% of the world's oil production or 32.8 million barrels per day. The leading ten oil-producing countries also included Canada, Iraq, China, Iran, Brazil, the United Arab Emirates, and Kuwait.
2 "Increasing production needs to be coordinated. Only U.S. actions are unlikely to lower the price to $40 per barrel. Communication, primarily with Saudi Arabia, is essential, and Trump traditionally has normal relations with them. If he asks very nicely, I think the Saudis might cooperate. Perhaps temporarily, but this would help lower oil prices," Dubovyk believes.
According to him, such a price corridor would create problems for U.S. oil production, especially shale oil, whose production costs are significantly higher than those in Russia.
Another important factor is China. Low oil prices will stimulate its economic growth. "For Trump, China is enemy number one, which must be economically destroyed," adds the president of the Global Strategy Center "Strategy XXI."
"The prospects drawn by the newly elected U.S. president look threatening for Russia and Iran, which need money for war, but how they will be realized is still a big question," adds Honchar.
According to expert Hennadiy Ryabets, Brent oil at $60 per barrel means very tight belts for Putin, $50 means significant difficulties, and $40 is a catastrophe.
"I wouldn't say this will stop the war, as Putin is betting on it. The war saves the Kremlin from having to answer a huge number of questions that no one from the Russians is asking. As soon as the fighting ends, questions will arise," Ryabets says.
3 "So far, these are just promises. The fact that this strategy could be implemented is supported by Trump's close contacts and good relations with the Saudi royal family, which have traditionally been strained with Democrats and Biden.
The Saudis have no difficulties increasing production. Trump also promised to lift restrictions to boost output, so it is possible that this could be realized. We’ll see how it works in practice," adds the expert.
How things are in Russia
Despite the drop in Brent prices from over $90 per barrel (the Russian Urals grade trades at a discount of about $10 per barrel relative to Brent) in April 2024 to nearly $70 per barrel on November 14, and the sanctions imposed against Russia, the Kremlin continues to receive massive revenues from the export of black gold.
4 For example, in September, Russia’s oil export revenues amounted to $14.7 billion, according to data from the Russian Oil Tracker by KSE Institute. This figure is $600 million lower than in August when Moscow's export revenues were $15.3 billion.
5 The key importers of Russian oil remain India, China, and Turkey, accounting for about 98% of the total export volume. The slight decline in Russian oil revenues in recent months is primarily linked to falling global prices. Meanwhile, the Kremlin's shadow tanker fleet, despite intensified sanctions from the U.S., EU, and UK, remains a significant problem.
As noted by KSE Institute, the widespread use of shadow tankers by Russia has made circumventing oil price restrictions a common practice for Moscow. In September alone, 112 shadow tankers loaded with oil departed from Russian ports. Additionally, two very large crude carriers (VLCCs), which are too large for loading at Russian ports, were engaged in ship-to-ship (STS) oil transfers.
"Weak adherence to sanctions could increase revenues to $190 billion and $174 billion in 2024 and 2025, respectively. Decisive action is needed from coalition countries to curb the shadow fleet," analysts at KSE emphasize.
A source in the government emphasizes that Trump must strengthen sanctions against Russia's oil and gas industry and its shadow fleet. Will he do this?
"At the beginning of the newly elected president's term, serious sanctions should not be expected. I don't think Trump will start with that; he will likely try to quietly lift sanctions. Much will depend