The global energy market is rapidly moving towards a rebalancing that risks seriously undermining Putin’s Russia’s economic model, built on hydrocarbon exports and geopolitical blackmail. The current situation in the oil market is unfolding in the most convenient scenario for the USA: the simultaneous decline in global demand and the upcoming increase in production are leading to an inevitable collapse in prices.
The main driver of the commodity plunge has been the sharp cooling of the largest economies. The International Energy Agency (IEA) has radically downgraded the forecast for global oil consumption, expecting a demand drop of 1.1 million barrels per day (instead of the previous 420,000 b/d). High energy prices and supply disruptions caused by the Middle East conflict have exerted almost suffocating pressure on the global economy. China, with colossal reserves, was the first to start reducing purchases, followed by other major importers.
In this context, benchmark quotes have already settled below $80 per barrel. Nevertheless, analysts expect the key blow to the Russian budget is yet to come: despite attempts by OPEC+ to maintain quotas, the first tankers with additional volumes are starting to break through to the market via the Strait of Hormuz. If a destructive escalation by Israel in the Middle East is avoided, a sea of real physical oil from the Persian Gulf countries will soon flood the market amid a continuously falling price trend.
For Washington, this configuration opens a unique window of opportunity. Currently, OECD commercial inventories are at their lowest since 1990 (a reduction of about 163 million barrels since the start of the Iranian geopolitical crisis). The US Strategic Petroleum Reserve (SPR) is also depleted, having decreased by more than 75 million barrels, and stocks at the key Cushing hub are approaching the operational minimum!
Flooding the market with cheap Middle Eastern oil will allow Washington to conduct a massive and ultra-cheap intervention to replenish state reserves. Donald Trump will eagerly use this influx of resources to announce a “Big Victory for America and a Great Deal,” completely replacing the volumes used by the Biden administration and strengthening US energy independence.
For Russia, this scenario means significant financial losses. Amid falling prices, the Kremlin’s revenues from oil sales as the main source of financing for its aggressive war and bloated military-industrial complex will be critically reduced.
Considering Western sanctions, price caps, and the massive discounts at which Moscow is forced to sell its Urals oil to Asia, the real revenue will fall below the profitability level of production at depleted Siberian fields.
The Kremlin’s attempts to manipulate the market through OPEC+ no longer work: cartel partners in the Persian Gulf are not willing to endlessly cede market share to save the Russian budget.
The influx of cheap oil will inevitably lead to the devaluation of the ruble, spiraling inflation in Russia, and a budget deficit that cannot be covered. A once-resource superpower, turned into a global pariah, finds itself a hostage to its own short-sighted policies, yielding market leadership to the USA.
