The new American administration intends to significantly increase pressure on the key energy sector of the Russian economy, which brings in more than half of all export revenues and provides the budget with every fourth ruble of taxes.

"Ukrainian Energy" found out exactly how the Americans are ready to act.

If Vladimir Putin does not go ahead with the operation regarding Ukraine, the United States will sharply increase oil supplies to the world market and lower the price to $40 per barrel or below, Robert Wilkie, head of the transition team of President-elect Donald Trump, said in an interview with BBC Radio.

"The presence of the United States on the world oil market will send the price down - and this will bankrupt the Russian economy. This will put incredible pressure on Putin's military economy," Wilkie said. He also announced an increase in supplies of American liquefied gas to Europe, where it already occupies 70% of the market, and in some countries, for example, in Germany - about 90%.

During the election campaign, Trump announced a large-scale expansion of oil and gas production in the United States under the slogan “Drill, baby, drill!” He promised that oil production in the country would increase by 15%, or to 3 million barrels per day — a volume that 100% covers the current export of Russian oil by tankers.

Trump also emphasized that the conflict in Ukraine “will not be able to end as long as world oil prices remain high.” The United States believes that Russia is at war and allows itself geopolitical adventures only when energy prices are high.

Media reports that Trump may pay his first visit to Saudi Arabia. For Russia, this visit is of an anxious and expectant nature, since Trump will probably raise the issue of extending the OPEC+ agreement, the purpose of which was to maintain oil prices while controlling the volume of its production by the countries participating in the agreement.

This deal is beneficial to the US, as American oil producers have gradually regained the market share occupied by OPEC+ countries, but Trump is not giving up. He needs a low oil price to maximize sales and literally strangle competitors who are under sanctions (Russia, Iran, Venezuela) or are critically lagging behind in technology, such as Nigeria. At the same time, this will allow him to solve political tasks - to overthrow the regimes of Venezuela and Iran and create a financial collapse for Russia in light of the pressure on it from the point of view of ending the Ukrainian conflict.

These are extremely ambitious and very sharp plans that may not be implemented (or begin to be implemented differently) precisely because of their sharpness. But if they are successful, then Trump will immediately implement a whole range of his plans.

At the same time, Saudi Arabia itself, without Trump, is moving towards winding up the deal, the US task is to intensify the process, make it faster and more dynamic. If Trump fails to reach an agreement, all market participants will begin to increase production, and countries under sanctions and countries with low technological capabilities will be forced to reduce their presence in the market.

Of course, no one will ask Russia or invite it to negotiate in this process.

Some analysts draw a parallel between Trump's actions and those of US President Ronald Reagan.

Comparisons with Reagan's policies in the 1980s seem logical. Then the US, using close ties with Saudi Arabia, achieved a significant increase in oil production, which led to a sharp drop in world prices for "black gold".

This process began in 1985, when production increased from 2 to 6 million barrels per day, which led to a collapse in prices to $ 10 per barrel in 1986. Since the USSR economy was heavily dependent on energy exports, the decline in oil revenues seriously hit the budget and contributed to the deepening of the economic crisis.

However, the decline in oil prices was only one of the factors in the collapse of the USSR. The economic model of the Union, based on the administrative-command system, was unstable. The USSR also failed to adapt to the changed conditions on the world market and lost the technological competition with the West. Therefore, the decline in oil prices played only an indirect, but decisive role in the collapse of the country.

In February 2015, Russia concluded the Minsk agreements after the price of oil collapsed from $110 to $50 per barrel in January. So now, for Russia to feel discomfort and want to end the war, oil prices must drop to about $50-60 per barrel.

Today, the situation on the oil market is very different from the 1980s. The global economy has changed, new players have emerged, and OPEC has become more vulnerable to internal disagreements. Nevertheless, the US strategy of reducing oil prices could theoretically facilitate negotiations with OPEC and Saudi Arabia. Riyadh remains a key player in the oil market, but its interests do not always coincide with those of the US. The Saudis can demand significant concessions. And other OPEC members, such as Iran and Venezuela, are unlikely to cooperate with the US at all.

In this case, the US will be forced to increase its own production. America remains the largest oil producer thanks to the development of shale deposits. But increasing production requires time and investment, especially in conditions of high price volatility. In addition, the US can use its own strategic reserves.

Using strategic reserves. The US can try to temporarily lower prices by releasing part of the strategic oil reserves. However, this will only have a short-term effect. Increased sanctions pressure, combined with low oil prices, will limit export profits. But it will also increase the motivation of Russians to look for workarounds and strengthen ties with alternative markets such as China.

However, if Trump really achieves a significant reduction in oil prices, then 2025 could indeed be a peace-making year.

Military expert Alexander Kovalenko believes that the oil issue is now more painful for the Kremlin than ever before.

"Donald Trump's statements on sanctions against Russia also touch on the topic of falling oil prices. Moreover, statements about devastating sanctions against the Russian Federation sound somewhat separate from statements about falling oil prices. And not in vain. In his inaugural speech, Donald Trump paid attention to the topic of US energy expansion in the world, and he never hid that his goal is to dominate the global oil and gas market. Therefore, the policy of lowering oil prices will be pursued by the White House in any case, regardless of how accommodating and compliant the Putin regime is. For those who have forgotten and do not believe that Donald Trump can collapse the oil market, I will remind you of his pricing policy of his first presidential term, which led to a historic collapse in prices. In April 2020, Russian Urals oil fell below $14 per barrel for the first time since the 1990s, which was critically below its cost," explains Kovalenko.

Then Russia was forced to close a number of its wells, leaving only those that could not be closed due to the critical state of wear and tear.

At the same time, questions arose about the quality of Russian oil, which was recorded as having an inflated sulfur content. All this indicated the degradation of technological processes and the decline in the quality of Russian oil even then. This also reduced the number of profitable fields.

According to the report of the Ministry of Energy of Russia for 2018-2019, over 14 years, oil production in Russia will decrease from 11 million barrels per day to 6 million barrels per day. Thus, Russia will be limited to self-sufficiency, leaving a bridgehead for exporters of black gold.

“It is likely that this degradation process is actually proceeding at a rapid pace. For example, in the report of the Ministry of Natural Resources of Russia “On the State and Use of Mineral and Raw Materials Resources of the Russian Federation in 2016-17.” It is reported in black and white that not a single large oil or gas field has been put into operation in the Russian Federation in 2 years. At the same time, the depletion of fields in the Urals exceeded 70%, in Western Siberia - over 50%. The development of promising fields on the Arctic shelf has been stopped due to the lack of technology and appropriate financing,” the expert notes.

In 2019, an inventory of Russian fields conducted by Rosnadra showed that their profitability was only 67%. That is, 33% of the fields were, in fact, operating at a loss 6 years ago. What is important is that Russian oil facilities - refineries - are regularly attacked by Ukrainian drones, which has already reduced Russia's export capabilities by 18%. If the attacks continue with the same intensity and effectiveness, the losses of the Russian oil refining industry over the next six months will exceed 30%.

According to Kovalenko, it is not difficult to imagine a collapse in oil prices, for example, to the level of $45 per barrel, but not for Russian Urals or Sokol, but for the benchmark Brent. For the Russian oil industry, this is comparable to being buried alive. It is difficult to imagine a more painful blow.

Olena Marchenko, specially for "Ukrainian Energy"

Tags:USA