Saudi $600B investment plan may hinge on oil price battle

- I will ask Saudi Arabia and OPEC (the organization responsible for nearly 40 percent of global oil production - editor's note) to lower oil prices. We need a reduction. The war must end, - Trump mentioned during the economic forum in Davos. - If prices drop, the war between Russia and Ukraine will end immediately. The current price is high enough to allow this war to continue. The oil price must be lowered, and this war must end - he declared.

This, however, may not be so straightforward.

As explained by Barrons, the current price of a barrel of Brent crude on world markets is $78, while Russian Urals oil is nearly $73. At these levels, "Russia earns enough to sustain the war." According to the International Energy Agency, last year, Russia exported about 7 million barrels daily, one of the worst figures in recent years. In August alone, export revenues fell by $1.6 billion compared to July, reaching $15.3 billion. However, these remain substantial sums.

The price of a barrel would need to drop significantly for the Russians to feel a substantial impact. In 2024, the average price of Urals oil was $67-$70 - enough for the Russian budget to remain stable. The G7 countries and the EU set a price cap on Russian oil at $60, but Moscow circumvented these restrictions through a broad shadow fleet network - explains Dr. Szymon Kardaś of the European Council on Foreign Relations in an interview with Money.pl.

The expert notes that oil extraction costs in Russia are low, about $15 per barrel in the main fields. For the Kremlin to feel an impact on the oil market, the price would need to drop to $30-$40 per barrel.

- Lowering the price to $50 won't have a significant impact. Moreover, if the Saudis reduce prices, the US would have to do the same, as they also sell to Europe. Would this action align with American interests, which Trump frequently discusses? I understand his intentions and acknowledge his efforts to signal that one of the keystones of Russian stability is revenue from the oil sector. However, I remain skeptical about finding a solution that satisfies everyone - assesses Dr. Kardaś.

The expert notes that Trump is determined and unpredictable, and he may pressure or tempt Saudi Arabia in various ways. On the other hand, since 2016, Russia has been collaborating with OPEC countries (including Saudi Arabia) under OPEC+ agreements, achieving positive results.

- In 2020, during the COVID pandemic, Russia and Saudi Arabia experienced a price conflict but retreated after a few weeks because it was unprofitable for both - adds Dr. Kardaś.

Both countries declared they would flood the market with oil to increase their leverage. Prices collapsed, reaching as low as $30 per barrel in April 2020. As a result, OPEC+ cartel members agreed to curtail oil production to raise prices. Since then, prices have not fallen to $30 again.

- Oil prices have been very volatile lately (in September 2024, they dropped slightly below $70, and in January 2025, they exceeded even $80 - editor's note). If OPEC adheres to Trump's demands, this commodity's price will fall further. However, the group will be reluctant to take such action, as current prices fall below most OPEC members' budgetary needs - Leo Mariani, an analyst at Roth MKM, tells Barrons.

Filip Rudnik, an analyst at the Centre for Eastern Studies' Russian Team, highlights that Trump’s threats to reduce oil prices and impose sanctions on Russia if it does not end the war in Ukraine aim to unsettle Russian elites.

Russian experts recall that Trump previously threatened to impact the oil market, leading only to short-term price reductions similar to the current situation. The Kremlin navigates this skillfully, fearing increased production in other countries, particularly outside OPEC. Already, increased extraction by Canadians and Brazilians impacts the war budget - Rudnik explains in an interview with Money.pl.

According to Rudnik, Trump might also try to exploit existing tensions within OPEC. - Moscow maintains strong relations with the Saudi court, but tensions arose in 2023. Russia illicitly extracted more oil than it agreed to within OPEC, negatively impacting the Saudis. Trump could capitalize on this - adds Rudnik.

Trump openly acknowledges his close ties with the Saudis. In 2017, Saudi Arabia was his first foreign visit after taking office, diverging from the tradition of US presidents visiting the UK first.

- They agreed to purchase $450 billion worth of our products - Trump recalled recently while reflecting on the visit. Of this, $110 billion was allocated for American weapons, including Black Hawk helicopters.

Now, an even larger flow of capital is expected from the Saudi court. Crown Prince Mohammed bin Salman has confirmed plans to boost investments and trade with the United States by $600 billion over the next four years, "possibly even more."

- I will address the crown prince, who is, incidentally, a fantastic man, to round this up to a trillion - Trump stated in Davos. Following this declaration, he spoke about Saudis and OPEC lowering oil prices.

Trump appears comfortable in Saudi Arabia. Before taking office in 2017, the Trump Organization—a conglomerate engaged in investments across roughly 500 entities, now managed by his sons—entered into a luxury skyscraper project agreement in Saudi Arabia. In 2024, two Trump Towers were announced for Jeddah and Riyadh.

As far back as 2001, Trump sold the entire 45th floor of Trump Tower in New York to Saudi Arabia for $4.5 million. The Saudis are also poised to invest $2 billion in Jared Kushner's real estate ventures, Trump's son-in-law, in Serbia and Albania.

A warming of Arab-American relations is likely following Trump's return to the White House. Former President Joe Biden accused the Saudis of the murder of journalist Jamal Khashoggi, who was dismembered in the Saudi consulate in Istanbul, which strained relations with the royal family.

Following this crime, Americans imposed sanctions on 17 Saudis involved but spared Crown Prince Mohammed bin Salman because, as Biden explained, America cannot sanction the leaders of allied nations. Saudi Arabia was considered an ally, even under Biden.

- A second term for Trump would undoubtedly reflect a distinct presidency. He is better prepared and aware of systemic constraints, but caution is warranted in accepting his declarations. In his first term, he employed rhetoric of swift, spectacular actions. He engaged with Kim Jong-un yet achieved little. Nonetheless, Trump might entice the Saudis, considering their mutual ties - assesses Dr. Kardaś.

Nevertheless, the Saudis require oil revenue for their mega-projects under the Vision 2030 development strategy. They are constructing the new supercity NEOM and the Qiddiya amusement park and are transitioning to an energy model where 50 percent of energy comes from renewables by 2030.

The Saudis are pleased with Trump's return, as expressed in Davos by Saudi Finance Minister Mohammed Al-Jadaan, emphasizing the robust economic and diplomatic bonds between Riyadh and Washington. He also discussed "major economic reforms" and "prosperity," in which the Saudis wish to partake.

- Trump exited the climate agreement, which the Saudis greeted positively. There will be no pressure to reduce CO2 emissions during oil extraction. However, I believe they will take a realistic view of price cut declarations - opines Dr. Kardaś.

The Kremlin is observing developments. They might be strategizing responses to potential tightened US-Saudi collaboration.

- No response was given when Biden, upon departing, imposed sanctions on over 100 ships from the shadow fleet. However, the Kremlin could retaliate by influencing enriched uranium exports to the USA. American nuclear reactors rely on Rosatom's supply chain. Although they likely have reserves, improvisation would be necessary - concludes Rudnik.

Piotr Bera