Is Donald Trump Bluffing? The White House Threatens to Destroy the Russian Economy with a Sharp Collapse in Oil Prices

In recent weeks, US President Donald Trump has stressed the importance of high oil prices to Russia's ability to wage war in Ukraine and suggested that curbing energy revenues would make the Kremlin more susceptible to compromise in peace talks, The Moscow Times reports.

In addition to declaring an energy emergency in the US to boost gas and oil production, Trump has called on members of OPEC, the Saudi-led alliance of oil producers, to help bring down the price.

"The price is high enough right now to keep this war going, you have to bring the price of oil down and end the war", Trump said on January 24.

"One way to end it [the war] quickly is for OPEC to stop making so much money", he added. "So OPEC needs to address this and bring down the price of oil. And this war will stop immediately.

At its first meeting since Trump's comments, OPEC+, which includes the Saudi-led alliance and other oil-producing countries such as Russia, stuck to its previously agreed oil supply plans.

OPEC's current plan is to continue curbing oil supplies this quarter before gradually increasing output from April.

That means that while Trump's pressure has so far gone unheeded, things could change in the future.

How important are oil revenues to Russia?

Energy is Russia's main export and the source of most of the hard currency it earns from abroad.

Western sanctions have hampered Russian gas exports by creating pipeline bottlenecks that make it difficult for Moscow to replace the volumes it has been selling. of Europe, with exports to other countries, namely China.

At the same time, Russian oil exports, most of which are transported by sea, remain stable and account for over 60% of the country's energy supplies.

The Kremlin has managed to redirect oil exports from Europe to India and China, although this route is more expensive due to longer voyages and the costs of the so-called "shadow fleet" of ships used to circumvent sanctions.

So far, the West's sanctions strategy has focused on increasing Russia's costs and reducing its oil profits, rather than completely cutting off supplies. For example, Russia can still legally sell its oil on world markets under certain conditions, unlike Iran, which faces a complete ban on all of its oil exports.

The problem is that Russia’s influence in the energy market is large enough that if all of its oil were sanctioned at once, it could cause panic and lead to a sharp rise in world prices.

"If there is no one to fill the Russian oil volumes, then the balance tightens, the price goes up, and that is exactly the opposite of what Trump is trying to achieve, which is significantly lower energy prices,“ Natasha Kaneva, head of global commodity strategy at JPMorgan, told Bloomberg TV.

What are the current forecasts for oil in 2025?

As things stand, the price of benchmark Brent is expected to average $74 a barrel in 2025, down from $81 in 2024, according to the U.S. Energy Information Administration (EIA).

The EIA released its forecast on Jan. 21, after Trump was elected and his push for greater oil and gas production.

$70 is enough for Russia to make a profit on oil sales, even though Russian Urals crude typically trades at a discount to Brent.

The Russian government expects to sell oil at an average price of $69.7 per barrel in 2025.

The drop in oil prices is unlikely to bring the Russian economy to a standstill, but it will have a negative impact on the budget. Every $10 per barrel change in the export price of Russian oil means about $17 billion in lost revenue annually. That's about 4% of Russia's total exports in 2023, which amounted to $425.1 billion.

What could sink Russia's oil revenues?

According to analysts including Sergey Vakulenko and Paul Sankey, only the United States has little room to increase oil production, at least in the short term.

OPEC members, mainly Saudi Arabia, have more than 2 million barrels per day of "short-term" spare capacity, or oil they can quickly put on the market to influence prices.

Theoretically, OPEC could help the U.S. create enough oil supply to lower oil prices and potentially push a significant portion of Russian oil out of the market. Whether the U.S. has enough leverage to do so — and whether such a move is in Washington’s interests — is another question.

First, according to JP Morgan analyst Natasha Kaneva, the U.S.’s equilibrium price for continuing to drill for oil is about $60 a barrel.

"Our estimates are that at a price level of $60, U.S. production is flat. At a price of $50, U.S. production is definitely declining," Kaneva said.

She added that Trump’s likely plan is to ease regulations on the oil industry so that the U.S. can cheaply increase production even at low prices. The results of such a policy, however, will not be seen immediately, but in years, she notes.

Second, it may be problematic for OPEC producers, especially Saudi Arabia, to lower prices even to secure a larger market share, since they need high oil prices to balance their budgets.

For example, Saudi Arabia needs an oil price of about $90 a barrel to meet its expected budget spending needs without running a deficit.

Despite Trump’s drive for lower oil prices, OPEC is unlikely to do much in the short term and may instead wait to see whether the market will experience a real shortage from the struggle to replace Iranian and Russian supplies, according to analyst Rachel Ziemba.

Ultimately, OPEC is likely to focus on its long-term interests, and that includes maintaining Russia's participation in any OPEC+ deal, Ziemba added.

There is also a political component that makes Gulf states hesitant to give in to Trump's demands.

OPEC countries may not want to set a precedent in which a major oil producer, in this case Russia, would be forced to sell its oil cheaply on Western terms, Vakulenko noted.

If that happens, a similar mechanism could be applied to Gulf states, for example through the US passing the No Oil Producing and Exporting Cartels Act (NOPEC), he believes.