ENB Pub Note: This is from The Merchant’s News on Substack, and Stu Turley will interview Giacomo Prandelli in December about this and several other global energy issues. We recommend following and subscribing to his Substack. Take a look at how Russia has survived, and the new Natural Gas pipeline to China will take 4 years to complete to replace the 19% gas that Russia still sells to the EU. The other item is that Stu Turley has been saying that after the war ends, the forced sanctions price reductions and caps will end, and prices will go up. This is counterintuitive, but only time will tell.
On November 23rd, US and Ukrainian officials walked out of talks in Geneva talking about “tremendous progress”. Secretary of State Marco Rubio called it “the most productive day” yet. Trump’s revised peace framework significantly softened from his controversial 28 point proposal is apparently on the table.
But why would Putin, who controls roughly 20% of Ukrainian territory and whose military hasn’t collapsed, suddenly become flexible?
The answer is in the oil price.
Trump said it himself at Davos in January, with a clarity that would make Machiavelli proud: “Right now the price is high enough that that war will continue. You gotta bring down the oil price and end the war.”
Think about that for a second. The President of the United States just told you his entire Ukraine strategy: economically strangle Russia by crushing oil prices until Putin can’t afford to keep fighting.
And the math checks out brutally. Russia pumps about 4.7 million barrels a day. Oil and gas revenues make up roughly 40% of Moscow’s federal budget. At current prices around $57-62 per barrel, Putin is feeling the squeeze.
Even though Russia successfully redirected oil exports to Asia after Western sanctions, China and India aren’t paying full price. They’re extracting $10-15 per barrel discounts below Brent. When you’re selling at a discount to buyers who know you’re desperate, your leverage evaporates.
Worse, Russia’s oil infrastructure is aging. Mature Russian oil fields naturally decline at 5-6% annually meaning Moscow needs continuous investment just to stand still. But Western oilfield services companies won’t touch them. The technology required to offset that decline? Unavailable at any price.
So Putin faces a vicious cycle: lower prices mean less revenue, less revenue means less investment in maintaining production, declining production means even less revenue, and the whole time he’s burning through reserves fighting a war.
Europe, which used to buy 4.7 million barrels per day from Russia, has made clear they’re not coming back while Putin’s in power. That market is gone permanently.
This is why Trump’s strategy might actually work. Not because of tanks and missiles, but because of balance sheets and barrel counts.
The very low oil prices Trump needs to pressure Putin are creating a thermodynamic time bomb that could explode into the most violent oil price spike in modern history.
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