There has been a never-ending discussion about the likelihood of a peace agreement in Ukraine since US President Donald Trump returned to the White House. Everyone has seen in public the heated meeting between Trump and Ukrainian President Zelenskyy, during which the US president made it apparent that he was unhappy with the latter, accusing him of impeding peace efforts in his nation and drawing the US into international military and diplomatic conflicts.
By: Mohsen Hassan
Following this stance, the two sides made headway in their attempts to end the war through negotiations, which led Trump to declare his optimism and desire for an early conclusion. However, the US president quickly replaced this optimism with critical messages accusing the Russian president of being slow to support international diplomacy to resolve the crisis.
Against this backdrop, economic factors influence and guide the situation, both favourably and unfavourably. If the war ends, this will be especially true for the oil economy and the future of oil resources in oil-exporting nations.
Another crucial question is whether the end of the war will eventually cause prices to fall significantly, which could jeopardise funding for development in places like Saudi Arabia and the Gulf region, for instance. The forecasts that suggest a potential $10 decline in the price of a barrel of crude oil make this particularly true. Are Saudi economic interests and bringing about peace in Ukraine really at odds?
A Base of Sustainability
First and foremost, it is important to note that the Kingdom of Saudi Arabia has been pursuing oil policies that are more orientated towards sustainability and stability than towards change and transformation for many years.
The United States Institute of Peace reports that Riyadh is establishing its substantial oil influence in two ways: first, by maintaining its key role in the Organisation of the Petroleum Exporting Countries (OPEC); and second, by lowering or freezing oil prices at low levels to sustain demand and its market share in the long run.
Saudi oil policy perceives an unchecked increase in oil prices as a financial threat to its market share and influence, both domestically and globally, as it could lead to cost-cutting measures or unexpected demand pressure in consuming nations, negatively impacting crude oil production and exports.
Moderate oil price stability is not a significant or unmanageable drawback for the Saudi economy, but it aligns with the Kingdom’s long-term oil policies, despite a decrease in financial resources derived from oil prices.
With the Kingdom’s hard-to-replace oil reserves and its extracted and latent stocks, the emphasis here is not so much on the immediate drop in oil prices as it is on the Kingdom’s ability to control the guarantees that result in the sustainability of the oil product and the strength of its presence in international markets.
Typically, this results in the strengthening of Saudi political stances on economic issues, particularly oil, and gives us a first glimpse that demonstrates the fallacy of the claim that ending the conflict in Ukraine would hurt Saudi oil production, as this claim is not entirely credible.
Read more: Oil Price Fluctuations and Their Effects on the Saudi Economy
Market Upheaval
The US administration’s desire to re-establish ties with Russia could potentially negatively impact the end of the Ukraine war, disrupting European markets for energy, oil, commodities, and metals, and favouring Russian trade and oil. Proponents argue that lifting US and EU sanctions on Russia would lead to increased commercial opportunities and a plethora of Russian goods and products, including oil, in international markets.
All products’ prices would consequently be impacted, and regional and international trade outlets—especially those in Europe—may see a precipitous price drop. This could jeopardise the energy and economic stability of the Gulf, which is centred on Saudi Arabia.
Naturally, supporters argue that removing sanctions on Russia could help Russia regain its economic influence in the global oil and trade arena, which has significantly decreased since the sanctions were imposed and the war began. As a result, the anticipated resumption of Russian trade and oil flows to global and regional markets would enable import sources to offer a range of goods at prices much lower than those incurred during the ongoing conflict.
Many international parties would experience market and economic disruption as a result, which would have a major detrimental effect on modifying financial budgets and spending on development projects, particularly those that depend on exports and oil and energy resources.
The economics of building, rebuilding, and peace are more successful at encouraging development and resource investment, including oil and energy resources, than the economics of demolition, destruction, and war. This point of view, in fact, utterly ignores this reality. Otherwise, the obvious question is: If sponsoring the current bilateral negotiations between Russia, the United States, and Ukraine to end the war would hurt Saudi Arabia’s oil and economic interests, why is it doing so?
Read more: Oil Discovery in Saudi Arabia: The Black Gold’s Journey
Successful Centralisation
The previous US administration, led by Joe Biden, was characterised by economic centralisation and alliances in the oil and energy sectors—particularly in the Middle East, North Africa, and the Gulf region—because the US deviated from its traditional roles towards allies and major global issues.
This abrupt disengagement led to many parties joining the BRICS economic bloc, for instance, with Chinese and Russian sponsorship. The Kingdom of Saudi Arabia, of course, was one of those that joined this alliance to safeguard its strategic role and govern its oil and energy horizon, which is open to the entire world, particularly to up-and-coming and future economic players, given its effective economic, oil, and energy centrality in the region and the world.
Accordingly, the Russian-Saudi partnership on oil production quotas in the framework of what is now called OPEC Plus was a powerful catalyst for coordinating the global oil and energy economies, particularly following the enactment of European and US sanctions on Russia for its war in Ukraine, and this bilateral cooperation was part of the substantial backing for the growing BRICS alliance since its introduction.
Assessing Saudi Arabia’s oil and energy future post-Ukraine conflict requires considering its economic, oil, and global centrality in managing the energy file. This includes the commercial, diplomatic, and economic ties that impact Saudi economic security and are related to the regional and global strategy for balanced oil policies with all parties.
Saudi Arabia’s flexible oil decision can handle international energy changes without compromising national goals, as demonstrated by its invitation to host peace talks between war-related parties, demonstrating its commitment to social and economic stability.
Read more: Saudi Economic Forecasts for 2025
A Clear Inconsistency
The Saudi Arabian government is implementing reform and urban development plans as part of its 2030 Strategy, including the NEOM City project, which is expected to house and resettle over 1.5 million people by the end of the Russian-Ukrainian war. However, there is a contradiction in the assessment of the detrimental effects on Saudi oil resources.
Economic analysts predict that a decline in crude oil demand and an increase in supply, possibly due to the cessation of the Russian-Ukrainian war, could hinder the pace of Saudi reconstruction and reduce its success in fulfilling its Vision 2030 commitments related to major projects, as the financing of these projects relies heavily on oil revenues.
Analysts predict that oil prices will fall to between $65 and $70 per barrel by the end of 2025, despite currently ranging between $74 and $75 per barrel. To keep the positive financing momentum for its reform and development plans—particularly those about raising the rates of the non-oil economy in exchange for lowering the volume of domestic energy consumption in the future—the Kingdom needs the price of a barrel of crude oil to stabilise at a level above $95 per barrel at this time.
Although this argument and the conclusion in general are valid, the apparent contradiction in all of this is that analysts fail to recognise the fact that the Kingdom of Saudi Arabia has numerous options for compensating for these price differences.
Read more: KSA is The EU’s Economic Arena for the Ensuing 10 years
Expanding Oil Export Markets
The most significant of these options is opening new markets for its oil exports and implementing phased plans to finish its major projects in order to avoid being exposed to any financing pressures besides using non-traditional approaches to increase economic and service diversification rates in a manner that facilitates the development of new, non-oil funding sources.
As a nation that promotes global peace and security and can adjust factors, no matter how unfavourable they may seem, to support its long-term objectives at every level, it is also morally and culturally incomprehensible that the Kingdom would see a halt to the conflict in Ukraine as a barrier to its economy.
Furthermore, the assertion that the markets would experience an oil flood if the war ended is dubious for some reasons, chief among them being the Russians’ incapacity to increase oil production because of a shortage of spare capacity.
It is a sovereign choice. In practice, however, it is important to remember that the Kingdom can take decisive action to revitalise its oil markets and sustain reasonable prices. It might try to collaborate with countries like Russia that are present in the world oil market, or it might go against the current expectations.
Here, it’s crucial to highlight the advantages that come from allies, collaborators, and people in crises having similar interests. These benefits can make up for any present or upcoming drops in the price of a barrel of oil for Saudi Arabia.
Read more: Abdallah Jum’ah Al-Dosari: From Broadcaster to Key Executive in Multinational Oil Firms
Saudi-American Strategic Partnership: Its Complexities
Even though the Saudi-American alliance depends on US intervention to support Saudi megaprojects, the Kingdom’s moderate and balanced position on US/European sanctions against Russia following the start of the war on February 24, 2022, in which Riyadh disregarded a direct request from US President Joe Biden to increase oil production rather than decrease it in an attempt to pull the rug out from under the Russian oil economy and provide energy support to the Ukrainian war machine.
The recurrence of the same stance with the current and new Trump administration, where the Saudi leadership disregarded another American request to pump flooding quotas of oil into the American and European markets to pressure the Russian side to lower the price and thus end the war, confirms that Saudi oil decisions are a sovereign decision, not just subject to the dictates of allies but also subject to the Kingdom’s supreme national interests.
Saudi Arabia’s sovereign decision was not to reply to American demands and to keep the price of its oil exports at the current level as long as it is not the only obstacle to ending this war. The Kingdom believed that stopping the war was not only related to the feasibility of flooding the markets with oil, but also related to other factors related to the management of the war by its direct parties or the indirect parties that control it.
Read more: Non-Oil Sectors KSA will Depend on to Diversify from Oil by 2025
A New Economic Paradigm in Energy Markets
Given the apparent weakness in Russia’s control over the price cap for its crude oil, this is particularly true in light of the emergence of specialised analyses verifying that lifting sanctions on Russia will not lead to Russian oil dominating the markets or a drop in prices.
Regardless, the oil and economic interests of Saudi Arabia are not at odds with the establishment of peace in Ukraine. Conversely, this possible peace could result in Saudi crude oil exports to Chinese markets once again, as the war and sanctions against Russia caused a drop of over 8.9% in favour of Russian exports.
However, factors resulting from war or peace are no longer the only factors influencing the recovery and recession in regional and global oil markets. This is because, in the fight for economic hegemony over the past few decades, new and unstudied factors have emerged. Perhaps most significantly, numerous international parties have worked to marginalise the dollar in all commercial and oil transactions in exchange for enabling exporters and importers to deal in local currencies.
This indicates that we are dealing with the rise of viable alternatives that could form significant and impactful lines on the map of economies in conflict and solidarity.
Read more: Abeer Al-Olayan is a Saudi Oil Pioneer
