Trump’s Push to Lower Oil Prices Could Reshape Geopolitics, Challenge Economies of Oil-Dependent Nations

At the World Economic Forum in Davos, U.S. President Donald Trump, speaking via video link on January 23, proposed a bold strategy to reduce global oil prices, asserting that high energy costs are prolonging the conflict between Russia and Ukraine. Trump urged OPEC, particularly Saudi Arabia, to lower oil prices, claiming this would accelerate an end to the war.

“I will ask Saudi Arabia and OPEC to lower oil prices. They need to do it,” Trump said. “To my surprise, they didn’t act before the U.S. presidential election. You (OPEC+) must bring down oil prices; this can end the war.”

His remarks sent shockwaves through energy markets, with Brent crude dropping from $79.5 to $78 per barrel, and West Texas Intermediate (WTI) falling to $75 per barrel. Trump’s rhetoric revived memories of 2020, when global oil prices plummeted to $20 per barrel during the COVID-19 pandemic. Back then, Trump had brokered a stabilization deal with Russian President Vladimir Putin and Saudi King Salman. Now, he appears ready to reverse course, aiming to weaken Russia economically by undermining its oil revenues, which account for 60% of the country’s budget.

A Test of Alliances

Trump’s proposal places Saudi Arabia in a precarious position. The kingdom’s 2025 budget assumes oil prices at $80 per barrel, aligning with its dependence on oil for 60% of government revenues. Any significant price reduction could strain its fiscal capacity, forcing Riyadh to rethink its energy and economic policies.

During a meeting with Saudi Crown Prince Mohammed bin Salman on January 23, Trump reportedly encouraged the kingdom to invest up to $1 trillion in the U.S. between 2025 and 2028. While the promise of closer economic ties may appeal to Riyadh, the kingdom's voluntary production cuts—part of the OPEC+ strategy to maintain prices in the $70-$80 range—suggest reluctance to flood markets with oil.

The U.S. Oil Dilemma

As the world’s largest oil producer, pumping 13-13.5 million barrels daily, the U.S. stands to gain geopolitical leverage by increasing output to meet global demand. Trump’s ambition to resume drilling in Alaska and offshore sites could push production to 15 million barrels per day. However, such efforts are commercially unviable at significantly lower oil prices, given the high costs of U.S. extraction.

Moreover, U.S. refineries, particularly in northern states, rely heavily on imports from Canada, raising questions about Trump’s ability to deliver on promises of reduced domestic fuel prices.

Implications for Azerbaijan

For Azerbaijan, an oil-dependent economy, Trump’s strategy represents a double-edged sword. The nation’s 2025 budget is based on $70 per barrel, leaving it vulnerable to a potential revenue shortfall. Historically, plunging oil prices have exerted currency pressure, most notably leading to the 2015 manat devaluation. Another sharp decline could spark inflation, reduce purchasing power, and dampen foreign investor interest in Azerbaijan’s energy projects.

Lower oil revenues could hinder funding for critical initiatives like the Southern Gas Corridor, a strategic project to diversify Europe’s energy supply. Additionally, decreased budgetary resources may force Azerbaijan to scale back infrastructure and social spending, potentially triggering public discontent.

On the other hand, sustained low oil prices might serve as a wake-up call for Baku to expedite economic diversification. Investments in renewable energy, agriculture, and tourism could help reduce reliance on hydrocarbons. Meanwhile, Azerbaijan’s long-term gas contracts with Europe provide some fiscal stability, ensuring steady income streams despite volatile oil markets.

GlobalandDomesticRealignments

Trump’s oil price agenda underscores the complexities of energy geopolitics. While it could destabilize Russia’s economy and strain OPEC’s cohesion, it also risks alienating key allies like Saudi Arabia. For oil-dependent nations like Azerbaijan, the challenge lies in managing immediate fiscal shocks while advancing structural reforms to build a more resilient economy.

In an era of mounting uncertainty, Trump’s strategy offers a stark reminder of the intertwined nature of geopolitics, energy markets, and global economic stability. Whether his vision will materialize or remain political posturing is a question that will shape not only the oil market but the broader balance of power in the years to come.