US President Donald Trump has reignited debate over global oil markets with bold statements at the World Economic Forum in Davos, where he called on OPEC nations, particularly Saudi Arabia, to slash oil prices.
Trump’s remarks tie the price of crude oil directly to Russia’s ability to sustain its military operations in Ukraine, suggesting that lowering oil prices could pressure Moscow into ending the war. While Trump’s strategy has garnered attention, the practicality of his ultimatum to Putin raises critical questions.
Trump’s Proposal: Pressuring OPEC to Slash Oil Prices
In his speech, Trump said he was “surprised” that OPEC had not acted to lower oil prices earlier, particularly before major elections. He directly linked the elevated cost of crude to Russia’s financial capacity to fund the war in Ukraine. “Right now, the price is high enough that that war will continue,” he remarked, suggesting that a significant reduction in oil prices would undermine Russia’s war chest. “You gotta bring down the oil price. That will end that war. You could end that war,” he added.
Trump revealed that he had recently spoken with Saudi Crown Prince Mohammed bin Salman, urging him and other OPEC members to expand production. Saudi Arabia, the de facto leader of OPEC, has significant spare capacity, estimated at 3.1 million barrels per day, which could be brought to market quickly. However, expanding production to drive down prices poses challenges, particularly given internal divisions within OPEC and the potential consequences for US domestic oil production.
Is Lowering Oil Prices Realistic?
Theoretically, OPEC has the capacity to increase oil production, and an influx of low-cost oil from Saudi Arabia and other producers could drive down prices. Analysts estimate that with additional production from Iraq, Kuwait, and the UAE, the global market could see an increase of nearly 5 million barrels per day. Such an increase could displace higher-cost producers, such as Russia, forcing them to reduce exports or sell at heavily discounted rates.
However, OPEC’s willingness to heed Trump’s demands is uncertain. Despite Saudi Arabia’s close ties to the former president, expanding production could destabilise the cartel’s production quota system, risking long-term market volatility. Additionally, OPEC+ members, including Russia, have shown reluctance to abandon coordinated production cuts, which have helped stabilise prices and ensure steady revenues for member states.
David Oxley, chief climate and commodities economist at Capital Economics, noted that Saudi Arabia and OPEC are not guaranteed to comply with Trump’s request. Expanding production might meet resistance from within the cartel, particularly as some members prefer to maintain higher prices to support their budgets.
Impact on Russia
Trump’s assertion that lower oil prices could undermine Russia’s ability to sustain its war effort is grounded in the fact that oil revenue is a cornerstone of the Russian economy. A significant drop in crude prices would reduce Moscow’s export earnings, complicating its ability to fund military operations and other strategic objectives.
However, Russia has adapted to sanctions and price caps by employing a “shadow fleet” of tankers and alternative financial arrangements. While these measures have allowed Russia to maintain export volumes, the introduction of additional low-cost oil from OPEC could weaken its market position, particularly in Asia, where it faces competition from Middle Eastern producers.
Risks to US Energy Policy
Trump’s plan to pressure OPEC into lowering oil prices faces domestic challenges. Lower global prices would likely discourage investment in US shale oil production, which relies on prices of at least $60 per barrel to remain profitable. The resulting slowdown in US production could undermine Trump’s broader energy goals, including his emphasis on increasing domestic output and achieving energy independence.
Moreover, Trump’s desire for lower prices conflicts with his call for increased US drilling. While he has criticised the Biden administration’s “nation-wrecking energy restrictions,” the financial viability of expanding US oil production hinges on stable or higher prices. A sudden price drop could deter investors, delaying the development of new projects and weakening the US oil industry’s competitiveness.
Geopolitical Dimensions
Trump’s strategy is not limited to oil. His efforts to strengthen ties with Saudi Arabia include broader economic and geopolitical goals. During his conversation with Crown Prince Mohammed bin Salman, Trump reportedly encouraged Saudi Arabia to increase its planned investment in the US from $600 billion to $1 trillion over the next four years. He also tied his oil diplomacy to the continuation of the Abraham Accords, a framework for normalising relations between Israel and Arab nations.
By leveraging his relationship with Saudi Arabia, Trump hopes to address multiple objectives, including reducing oil prices, pressuring Russia, and fostering Middle Eastern stability. However, this multi-pronged approach faces significant obstacles, not least the inherent complexities of global oil markets and regional geopolitics.
Practicality of the Ultimatum
Trump’s ultimatum to Putin, based on slashing oil prices, is ambitious but fraught with practical challenges. While Saudi Arabia and other OPEC nations have the capacity to increase production, internal divisions within the cartel and the potential long-term consequences for the oil market complicate the strategy. Additionally, lower prices could harm US shale producers, undermining Trump’s goal of boosting domestic energy production.
Ultimately, while Trump’s proposal could put financial pressure on Russia, its effectiveness depends on OPEC’s willingness to cooperate and the broader geopolitical context. For now, Trump’s plan remains more of a strategic ambition than a practical short-term solution.
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Donald Trump’s Economic Ultimatum: A Turning Point in U.S.-Russia Relations?
