Peace in Ukraine can make oil too cheap

Gulf countries, rich in oil, were directly affected by the US and the European Union’s decision to impose sanctions on Russia, which, along with Saudi Arabia, leads an alliance of oil producers known as OPEC+.

A fast end for war in Ukraine could result in cheaper commodities, from oil to metals and other products, such as fertilizers, which depend on natural gas for their production.

“The normalization of relationships with Russia is a great momentum to get any commodity at a lower price than before. Large parts of the commodity market will be easily available again, ”said Viktor Katona, head of oil analysis at the Kpler intelligence company, Middle East Eye.

Of course it depends on the US suspending sanctions to Russia. The Trump government has been quite transparent since it started negotiations with Russia in Saudi Arabia this week, stating that as part of a broad agreement to end the war in Ukraine, US sanctions will be suspended.

“The sanctions were the result of this conflict. To end any conflict, all parties need to make concessions, ”said Secretary of State Marco Rubio.

Now, let’s go to oil.

‘Negative for prices’

In a note this week, Bank of America analysts said a Peace Agreement in Ukraine could result in a $ 5 to $ 10 drop in Brent’s barrel price. This is a significant drop considering current prices.

On Friday afternoon, Brent was being negotiated with a 2%drop at $ 74.96 per barrel.

Katona stated that the end of the war in Ukraine is “negative for prices.”

“Russians will no longer produce oil because they don’t have much idle capacity, but the system will become more predictable. The price of oil will be cheaper at the end of 2025 than it is now, ”he said.

For Gulf countries, especially Saudi Arabia, this is bad news.

The IMF states that Saudi Arabia needs the price of oil to be around $ 96 per barrel to balance your budget. This number has increased as the kingdom tries to reduce the offer to raise prices.

Saudi Arabia has a higher equilibrium price than its “Frenemy” at OPEC, and increasingly geopolitical rival, the United Arab Emirates (EAU).

The kingdom is investing billions of oil revenue in expensive megaprojects, designed to reduce its energy dependence on the future and diversify its economy.

Riyadh had to reduce some projects, such as Neom, futuristic megation. Instead of 1.5 million people living there by 2030, Saudi authorities now expect less than 300,000 residents.

A linear city of 170 km, as planned, should only reach 2.4 km by 2030.

West price limit to Russia failed

The Biden Government resented itself from Saudi Arabia’s decision not to release more oil during the war in Ukraine. A former US intelligence employee echoed many colleagues by telling the MEE that Riyadh had “stayed against us (the US) and sustained the economy of Russia.”

Even Trump, who maintains good ties with heir prince Mohammed bin Salman and defended economic cooperation with Russia as the Ukraine war ended, asked Saudi Arabia to flood the market in January.

“If the price fell, the Russian-Uturian war would finish immediately. Now the price is high enough for the war to continue – it is necessary to reduce the price of oil, ”said Trump.

Of course, the kingdom had no interest in overthrowing the price of its main export for US political interests.

Regardless of this, Trump is seeking a peace agreement in Ukraine with oil prices practically at the same levels as January when he made these comments.

Petroleum prices, which began 2022 being traded around $ 76 per barrel, fired to more than $ 100 when Russia broke into Ukraine, but fell more than 20% in the last three years. Russia invaded Ukraine on February 24, 2022.

Gregg Priddy, energy consultant at Spout Run Advisory, headquartered in Washington, told the MEE that the end of the war in Ukraine can be neutral for oil prices.

As the Russian supply has not fallen substantially, the end of sanctions to Russia will not mean a flood of oil in the market to depress prices.

“There was no great reduction in Russian volume in the market. It was only displaced. The price limit did not work very well, ”he said, adding that China and India absorbed Russian oil.

Why does India buy Russian oil from the Emirates?

Those who have more to lose with the end of the sanctions are the owners of ships, who benefited by passing the risk of war awards to Russia. As Russian oil is traveling indirect routes to reach destinations, tanker ships are missing and the rates have increased.

“Western sanctions made the tank ships, which was already saturated, tighter. So this is bad if you are a ships owner, ”said Priddy.

There were a number of side effects due to Western sanctions.

The US expelled Russia from Swift, the global US dollar -dominated financial messaging system. In response, Russia moved to isolate itself from the dollar -based trade system.

The Russian oil intended for China crosses its border at the far east. This trade has already migrated to Yuan. Analysts say China has no motivation to bring this trade back to the dollar.

With other customers, Russia used proxies for the dollar. EAU were great beneficiaries. They became a Russian oil trade center. For example, India began buying Russian oil from the Emirates, which are linked to the dollar for stability.

The rise of Dirham as a dollar proxy in the Russian oil trade has helped bring billions of dollars to the emirates banks.

Dubai’s status as the “new Geneva” for Russian oil trade can be affected if the US opens the doors to Russia to return to the dollar -based system.

The Trump government and its media allies are constantly highlighting the threat that they believe sanctions represent for dollar status as a global reserve currency.

“We must be carefully implemented… and crucially ensure that the US dollar remains the world reserve currency,” said US Treasury Secretary Scott Bessent at his Senate confirmation hearing.

Saudi Arabia hopes to recover market share in China

Saudi Arabia expects the end of US sanctions to allow it to recover market share in China. In 2024, Russian exports to China reached a historic record, while Chinese Saudi oil purchases fell 9%.

But analysts say this is unlikely to happen.

Katona said Russian oil is being negotiated with a $ 4 discount per barrel from Saudi oil. If the US suspends sanctions, Russians can reduce prices and yet be cheaper than Saudi Arabia. China also has the additional benefit of negotiating in Yuan with Russia.

Could Turkey send Russian oil to Europe?

Another great determining factor is Europe. The European Union still matters some Russian gas, but has fully prohibited the importation of gross oil and Russian refined products carried by sea.

“Europe will not buy Russian oil again,” said Katona.

Priddy said we can see a division between the European Union and the US.

“Europe and the United States can follow different paths regarding sanctions. I don’t think the European Union will buy Russian oil again, ”he said.

Of course, there are other ways in which EU states could import Russian oil. If the US relieves sanctions, it would allow Turkey to import Russian oil with more freedom, refine and resolve to European states.

This is already being done with Russian gas through the Turksstream pipeline. The supply of Russian gas to Europe through Turkstream reached a historic record in January.

Saudi Arabia depends on China

Saudi Arabia depends on Chinese refineries to buy your oil. She also invested in Downstream production there. But the Chinese economy is slowing down, and analysts question if it has already reached the peak of oil demand. If Saudi Arabia cannot expel Russia from China, another competitor remains: the Islamic Republic of Iran.

Trump promised to resume a “maximum pressure” campaign against Iran. Last month, Reuters reported that Chinese state group Shandong Port Group decided to start blocking tank ships under US sanctions. This is a big blow to Iran, whose aged clandestine fleet transports most of its oil to China.

“[A Arábia Saudita] It has a chance that the US eliminates Iran’s oil exports. This is a brilliant opportunity, ”said Katona.