Donald Trump speaks at the World Economic Forum Annual Meeting in Davos, Switzerland, on January 23rd, 2025.
Why Trying to Force Russia into Negotiations with Weak Oil Prices Will Not be Enough
Tuesday’s meeting in Saudi Arabia between top Russian and American foreign officials shows a renewed effort to end the Russian war in Ukraine. However, the hope for a favorable end to the war ultimately depends on the leverage and incentives brought to the table. The Trump administration’s strategy for leverage is unclear and confusing at this point, especially after Trump’s recent comments about Volodymyr Zelenskyy, which showed the Russian delegation his disinterest in continuing Ukrainian support. However, Trump’s staff has left some prior clues as to ways to establish leverage over Russia. Donald Trump’s special envoy to Ukraine and Russia, retired Lieutenant General Keith Kellogg, previously said that if the OPEC could get the price of oil to $45 per barrel, it could financially weaken Russia enough that the United States and Ukraine can enter negotiations from a position of strength—an idea later echoed by Secretary of Defense Pete Hegseth. But is this realistic? With the United States already producing oil at historically high rates and volumes, it is hard to see how it can simultaneously remain competitive and force Russia into a favorable agreement through low oil prices, especially without the unified support of its allies.
Russia has been able to fund its war efforts through its oil and gas industry, with revenue from these industries generating between 30 and 50 percent of Russia’s government budget in a given year. Despite spending a quarter of its federal budget in Ukraine in 2023 and increasing defense spending to 33% of the federal budget in 2025, Moscow has been able to keep the federal budget deficit down and GDP growth consistent, and sanctions on these commodities by the West have yet to force the Kremlin to capitulate.
President Trump has claimed that if OPEC members can “stop making so much money,” and temporarily lower oil prices, “[the war in Ukraine] will stop right away.” This is no small favor to ask, as the president is suggesting that five of the top ten oil-producing countries in the world drastically cut their profit margins to help defeat a state that many of those countries have a relationship with. For instance, While Saudi Arabia is the world’s 2nd largest oil producer and has a strong relationship with the U.S., it has maintained good relations with Russia throughout the war, and would be reluctant to assume the risks involved.
With oil prices above $70/barrel, a $45/barrel target would mean nearly a 40 percent cut and a price point that has not been seen since February 2016 (excluding the COVID-19 pandemic). Domestically, this price point is not feasible for the United States. The creation of a new oil well in the United States’ most oil-rich region is only profitable at a $62/barrel price point. For existing pumps in this region, the price of oil must be above $38/barrel to break even. It would not make sense for U.S. oil companies, many of which supported Trump’s return to the Oval Office, to agree to such low (or even nonexistent) profit margins. Because of this, U.S. oil companies and Saudi officials have already begun informing Trump that they will not be increasing oil production.
Regardless of the difficulties, what President Trump is attempting to do is not unprecedented. In July 2022, the Biden Administration tried to convince the de facto leader of Saudi Arabia, Mohammed bin Salman (MBS), to increase global oil supplies for the same purpose of slowing down Russia. Those talks failed, and three months later, OPEC, alongside Russia, announced a cut in oil production. While Trump may have a better relationship with MBS than Biden did, there would have to be extreme incentives in place for Saudi Arabia and OPEC to consider such a sudden, drastic drop in profit.
Ultimately, while it is clear that the Trump administration is interested in ending Russia’s war in Ukraine, it is unclear on what terms. Trump’s previously-expressed interest in manipulating oil prices in hopes it will starve Russia of the revenue funding its invasion at least indicates that the administration is considering some leverage to exert, but this plan is ultimately at the mercy of a free market that is not inclined to participate. Frankly, it may not matter any longer if he has simply lost interest in supporting Ukraine. If he still is looking to exert real leverage, it may be easier to combine the collective power of the U.S. and all its eager European allies in a united front.
Image Credit: “World Economic Forum Annual Meeting“. Copyright: World Economic Forum/ Benedikt von Loebell. CC BY-NC-SA 2.0
