Trump is eager to negotiate oil prices as his number one position is threatened.

The US has been hit hard by Russia.

The latest proposal for negotiations on oil prices comes after President Donald Trump had a private phone call with Russian President Putin and Saudi Arabian Crown Prince Mohammed bin Salman earlier.

In fact, President Trump's concern about the oil price war between Russia and Saudi Arabia is not new, but more broadly, between the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and non-OPEC countries, led by Russia. And more than anyone else, Trump understands Russia's objectives in resolutely rejecting OPEC's proposed oil production cuts, amidst continuously falling oil prices in the first quarter of this year.

Russian President Vladimir Putin and Saudi Arabian Prince Mohammed bin Salman. Photo: Dailymail.co.uk

Russian President Putin also readily admitted that oil production cuts are unprecedented and only help US shale oil producers surge in market share. The lesson from the past is clear: US oil production skyrocketed from nearly 6 million barrels per day in 2011 to a record high of almost 18 million barrels per day in 2018, far surpassing Russia and Saudi Arabia. This also marked the milestone of the US becoming the world's number one oil exporter. In this context, Russia's market share plummeted, forcing it to seek countermeasures!

It's no wonder that in early March, a price war unexpectedly erupted when Saudi Arabia proposed production cuts amid declining global demand due to the Covid-19 pandemic. However, Russia refused. Initially, tensions were seen escalating between Russia and Saudi Arabia, with some believing Moscow was being sanctioned by Riyadh, or that Riyadh wanted to assert its position and influence. But later, it became clear that Russia's primary target was the United States.

According to observers, if oil production remains at its current level, oil prices will continue to fall sharply, and a number of small-scale shale oil companies in the US – already heavily indebted – will face the risk of bankruptcy. Looking back to late 2015, a similar situation occurred when Saudi Arabia increased production, flooding the world market with cheap oil.

Investors anxiously watched the volatile stock market and oil prices. (Photos: AFP, Getty)

It's worth reiterating that since 2016, as the unofficial leader of the group of 13 non-OPEC oil producers, Russia has played a crucial role in determining oil prices. This role is similar to that of Saudi Arabia within OPEC. And now, while the Trump administration has been extremely anxious as the crisis and difficulties piled up, both Russia and Saudi Arabia remain confident they can hold out and maintain low oil prices for some time longer.

The US seeks to form an alliance with Saudi Arabia.

According to observers, under increasing pressure, the only thing the US can do now is probably diplomacy, negotiation, and bargaining. This is precisely what the Russian government is hoping for.

More than anyone else, President Putin has had to swallow his resentment over the years because the US, which is not bound by any organization or cooperation mechanism, has benefited greatly from it. Meanwhile, Russia has joined OPEC under the OPEC+ mechanism and also leads a group of 13 non-OPEC countries such as Azerbaijan, Bahrain, Bolivia, and Kazakhstan...

Therefore, some argue that this is a "major move" by Russia, on the one hand, to "realign" the global oil market towards greater fairness. Of course, the US will not be able to simply reap the benefits as before, nor can it continue to easily use energy as a tool for economic and political control on a global scale. This also means that in any negotiations—if any—between Russia, the US, and Saudi Arabia, Russia may choose to either politely propose or openly confront the US to force it to participate in current oil cooperation mechanisms.

US President Donald Trump and Saudi Arabian Prince Mohammed bin Salman chat at the G20 summit in Osaka, Japan, in June 2018. Photo: Reuters

On the other hand, Russia could also use this opportunity to bargain with the US for some concessions related to the lifting or easing of sanctions imposed on Russia in recent times. It should also be recalled that the 2019 production cut agreement between OPEC and non-OPEC oil producers, led by Russia, expired on March 31st. At this time, negotiations are also necessary for the parties to consider new agreements to effectively coordinate the oil market.

For its part, observers comment that the US also seems to be considering joining forces with its ally Saudi Arabia to "do battle" with Russia in the oil market share race. Government sources say that US Secretary of State Mike Pompeo and Energy Secretary Dan Brouillette recently proposed this idea to National Security Advisor Robert O'Brien. However, no decision has been made yet.

However, according to analysts, to get Saudi Arabia's approval, Washington may have to negotiate and agree with Riyadh on a range of issues such as supporting oil prices through the use of national reserves, stimulating the economy, or providing compensation for actions that impact the oil market...

Of course, the US still has the advantage as the leading arms supplier to Saudi Arabia and enjoys a fairly good personal relationship between the leaders of both sides. However, Trump has recently faced tough stances from US congressional representatives regarding the need to exert strong pressure on his Middle Eastern ally, Saudi Arabia.

At this point, it's likely that all sides have already prepared their "trump cards," waiting for the opportune moment to unleash them and gain an advantage over their rivals in the fierce battle for oil prices and market share. More broadly, this will be a large-scale shift that could completely alter the balance of power in the global oil market. However, this war will likely continue depending on many factors, with the Covid-19 pandemic proving to be an extremely unpredictable variable for all parties involved!

The Abqaiq oil refinery of the Aramco energy group in Saudi Arabia. Photo: AFP