January 25, 2025
By Nasser Kandil
• U.S. President Donald Trump turned his participation at the Davos conference into a platform to advocate for reducing oil prices. Sources close to Trump reveal his aim to bring the price of oil down to $60 per barrel, as opposed to the near $80 mark. Achieving this reduction, which Trump has urged OPEC to undertake, essentially involves calling for a 25% increase in production. This would translate to adding approximately five million additional barrels per day to the global oil market.
• Trump’s rhetoric suggests that linking lower oil prices to ending the war in Ukraine is more of a pretext than a substantive strategy. Increasing production at lower prices would maintain nearly the same revenue levels for major producers. The primary target here is Russia, a key party in the Ukraine war, whose oil revenues finance its military campaign. The aim is to pressure Russia into accepting potentially unfavourable terms to end the conflict.
• In practice, Trump’s call for lower prices follows earlier statements about the oil market, where he announced that the U.S. would enter the global oil trade without production caps or regulations – a departure from its decades-old approach. The anticipated increase in U.S. production, estimated at an additional five million barrels per day, would naturally lead to lower prices due to market oversupply. Trump’s advocacy for price reductions preempts the anticipated price drop caused by this surplus, allowing him to shift blame for the market effects onto OPEC, while positioning the U.S. to secure a strong foothold in global markets.
• Moreover, Trump’s comments at Davos reinforced a prior declaration that Europe’s oil market would essentially become an American domain. He presented this as a strategy to stimulate the U.S. economy by expanding its oil sector and opening new markets, while also offering Europe an alternative to higher contributions to NATO’s budget. This approach is also intended to address the trade imbalance favouring Europe over the U.S.
• Contrary to appearances, Russia is not the primary loser in Trump’s oil market maneuvers. European markets are likely to be split between American and Russian suppliers. Instead, Saudi Arabia emerges as the biggest loser. If oil prices drop due to increased U.S. production, Saudi Arabia will face significant revenue losses, whether through maintaining production levels or cutting output to stabilise prices. In either scenario, Saudi income from oil could shrink by approximately 25%, amounting to a loss of around $500 billion annually. Meanwhile, Trump is demanding Saudi Arabia invests $1 trillion in the U.S.?
