One of US President Donald Trump’s closest allies in Europe, Hungarian Premier Viktor Orban, said in February that the US could bring an end to the war in Ukraine in less than six months.
The US’s whirlwind bid to resume relations with Russia and end the war has left Europe reeling. The Arab Gulf will be closely watching what that could mean for energy prices and the oil trade.
Oil-rich Gulf states were directly impacted by the US’s and European Union’s decision to sanction Russia, which, along with Saudi Arabia, leads an alliance of oil producers dubbed Opec+.
A rapid end to the war in Ukraine could mean cheaper commodities, from oil to metals and everything in between, like fertiliser, which requires natural gas for production.
“Russian normalisation is a huge boost to get any commodity cheaper than it was before. Vast chunks of the commodity market will be made easily available again,” Viktor Katona, the head of oil analysis at the intelligence firm Kpler, told Middle East Eye.
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Of course, that relies on the US dropping sanctions on Russia. The Trump administration has been fairly transparent since it began talks with Russia in Saudi Arabia this week, saying that as part of a broad deal to end the war in Ukraine, US sanctions will cease.
“Sanctions were all the result of this conflict. In order to bring an end to any conflict, there have to be concessions made by all sides,” Secretary of State Marco Rubio said.
Now, to oil.
‘Bearish for prices’
In a note this week, Bank of America’s analysts said a peace deal in Ukraine could mean $5 to $10 a barrel cheaper Brent crude prices. That is a notable dip, given prices.
As of Friday afternoon, Brent was trading down two percent at $74.96 per barrel.
Katona said an end to the war in Ukraine is “bearish for prices”.
“The Russians won’t produce more oil because they don’t have a lot of spare 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.
‘There has not been a lot of Russian volume off the market. It’s merely been displaced’
– Greg Priddy, energy consultant
For the Gulf states, particularly Saudi Arabia, that is bad news.
The IMF says Saudi Arabia needs oil prices at about $96 a barrel to balance its budget. That number has ticked higher as the kingdom tries to curb supply to lift prices.
Saudi Arabia has a higher breakeven price than its “frenemy” in Opec, and increasingly, its geopolitical rival, the UAE.
The kingdom is pouring billions of dollars in oil revenue into costly mega-projects designed to reduce its reliance on energy in the future and diversify its economy.
Riyadh has had to curb some projects, like Neom, the futuristic mega-city. Instead of 1.5 million people living there by 2030, Saudi officials now anticipate fewer than 300,000 residents.
An envisioned 170km straight-line city is expected to hit only 2.4km by 2030.
West’s failed Russian price cap
The Biden administration resented Saudi Arabia’s decision not to unleash more oil amid the war in Ukraine. One former senior US intelligence official echoed many colleagues when they told MEE that Riyadh had “sided against us (the US) and propped up Russia’s economy”.
Even Trump, who enjoys good ties with Crown Prince Mohammed bin Salman and has talked up economic cooperation with Russia once the Ukraine war is over, called for Saudi Arabia to flood the market in January.
“If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue – you got to bring down the oil price,” Trump said.
The kingdom, logically, had no interest in crashing the price of its main export for US policy interests.
Trump, regardless, is pursuing a Ukraine peace deal with oil prices roughly where they were in January when he made the comments.
Oil prices, which started 2022 trading at around $76 per barrel, shot up over $100 when Russia invaded Ukraine but have fallen over 20 percent in the last three years. Russia invaded Ukraine on 24 February 2022.
Gregg Priddy, an energy consultant at the US-based Spout Run Advisory in Washington, told MEE that an end to the war in Ukraine might be neutral for oil prices.
Because Russian supply hasn’t substantially dropped, lifting sanctions on Russia won’t mean a flood of oil into the market to depress prices.
“There has not been a lot of Russian volume off the market. It’s merely been displaced. The price cap hasn’t worked very well,” he said, adding that China and India gobbled up Russia’s crude.
Why India buys Russian oil in Emirati Dirhams
Those who have the most to lose from an end to sanctions are vessel owners, who have benefited from passing on war-risk premiums to Russia. Because Russian crude is taking circuitous routes to reach their destinations, tanker vessels have been in short supply and rates have risen.
“Western sanctions made an oversupplied tanker market tighter. So this is bad if you are a tanker owner,” Priddy said.
There were a whole slew of knock-effects because of the West’s sanctions.
The US kicked Russia out of Swift, the global financial messaging system, which is dominated by the US dollar. In response, Russia moved to insulate itself from the dollar-based trading system.
Russian oil bound for China travels across its far-eastern border. That trade has already moved into Yuan. China has no motivation to bring that trade back to the dollar, analysts say.
‘We must ensure that the US dollar remains the world’s reserve currency’
– US Treasury Secretary Scott Bessent
With other customers, Russia used proxies for the dollar. The UAE was a big beneficiary. It became a hub for Russian oil trading. For example, India started buying Russian crude in Emirati Dirhams, which are pegged to the dollar for stability.
The Dirham’s rise as a proxy for the US dollar in Russia’s oil trade helped bring billions of dollars into Emirati banks.
Dubai’s status as the “new Geneva” for Russian oil trading could get sapped if the US opens the door for Russia to move back into the dollar-based system.
The Trump administration and its allies in the media are constantly hammering home the threat they believe sanctions pose to the dollar’s status as the world’s reserve currency.
“We must carefully deploy sanctions…and critically. We must ensure that the US dollar remains the world’s reserve currency,” US Treasury Secretary Scott Bessent said in his Senate confirmation hearing.
Saudi Arabia hopes an end to US sanctions will allow it to regain market share in China. In 2024, Russian exports to China hit an all-time high, while the Chinese purchases of Saudi Arabian crude fell nine percent.
But analysts say that is unlikely to happen.
Katona said Russian crude is trading at a $4 per barrel discount to Saudi crude. If the US lifts sanctions, the Russians could undercut prices and still be cheaper than Saudi Arabia. China also has the added benefit of trading in Yuan with Russia.
Could Turkey send Russian oil to Europe?
The other big determining factor is Europe. The European Union is still importing some Russian gas but totally banned the import of seaborne Russian crude and refined petroleum products.
“Europe will not be buying Russian crude again,” Katona said.
Priddy said we could see a split between the European Union and the US.
“Europe and the United States could go different ways on sanctions. I don’t think the European Union will take back Russian crude,” he said.
Of course, there are other ways EU states could import Russian crude. If the US eases sanctions, that would allow Turkey to more freely import Russian oil, refine it and resell it to European states.
It is basically doing that right now with Russian gas through the Turkstream pipeline. Russian gas supplies to Europe through Turkstream hit an all-time high in January.
Saudi Arabia depends on Chinese refineries to buy its oil. It has also invested in downstream production there. But China’s economy is slowing and analysts are questioning whether it has already hit peak oil demand. If Saudi Arabia can’t nudge Russia out of China, that leaves one other competitor, the Islamic Republic of Iran.
Trump has vowed to return to a “maximum pressure” campaign on Iran. Last month, Reuters reported that China’s state-owned Shandong Port Group decided to start blocking tankers under US sanctions. That is a huge blow to Iran, whose ageing shadow fleet ships most of its oil to China.
“[Saudi Arabia’s] chance is for the US to knock out Iran’s oil exports. That is a gleaming opportunity,” Katona said.