Riyadh summit will shape global energy geopolitics

Matein Khalid

All roads lead to Riyadh, which has replaced Geneva as the epicentre of global diplomacy in 2025.

Presidents Trump and Putin will meet in the Saudi capital amid the most dramatic U-turn in US foreign policy as Washington switches sides in the Ukraine war in favour of the Kremlin, bypassing the EU and the embattled Ukraine state.

Egyptian President Abdul Fattah al-Sisi is in Riyadh to coordinate the Arab League’s counter offer to Trump’s Gaza plan. Saudi Arabia has even offered to act as a mediator to reduce the risk of war between the US, Israel and Iran.

Potential sanctions relief on Russia, coupled with a Gaza settlement, will have a seismic impact on the global oil and gas market and impact the energy geopolitics of Europe, China, India and the Middle East.

Trump has conceded to Putin’s maximalist demands by just agreeing to meet him in Riyadh without any representation from Brussels or Kyiv. However, in a surprise move on Tuesday, Kyiv agreed terms with Washington on a minerals deal that Ukrainian officials hope will improve US relations and pave the way for a long-term security commitment.

Trump has made no secret of his desire to win the Nobel Peace Prize by ending the Ukraine war, while he must also lower oil prices to combat rising inflation pressures in the US economy. So, he has a vested interest to capitulate to Putin’s demands and offer generous sanctions relief to the Kremlin as an incentive to end the war at once.

What does this mean for markets? Oil prices could fall when the smoke signals from the Riyadh summit reach the oil futures trading pits of London, New York, Chicago and Singapore.

Oil futures options and swap markets worldwide now trade 15-20 times the 104 million barrels consumed daily. The global oil market, not Russia, Saudi Arabia or even the US, will decide where the marginal price of Brent and West Texas Intermediate (WTI) trade in 2025.

Trump’s maverick tariffs and provocative policy shifts on Ukraine-Russia have made professional oil traders slash their risk exposures in the markets. This is the reason volatility has trended down in the past three weeks even as Brent has traded in a narrow range. However, that trading range could widen significantly after the Riyadh summit.

Even if a deal materialises, it may not be implementable if its terms are not acceptable to President Zelensky or Germany’s new centre-right Chancellor Freidrich Merz.

Zelensky has bluntly said that Ukraine will not “accept any deal about us without us”. Germany is the EU’s economic colossus accounting for one third of the bloc’s GDP; it has paid a terrible price for its energy dependence on Russia’s Gazprom since the Schröder/Merkel eras.

If Merz seizes on a Riyadh deal to engineer a separate rapprochement with Russia in exchange for cheap gas imports, a major inflection point in global energy prices is inevitable.

The strategic stakes for Saudi Arabia from the Trump-Putin summit could not be higher. The kingdom’s preeminent national interest is the success of the Crown Prince’s Vision 2030 project for socioeconomic transformation. The last thing Saudi Arabia needs is a major fall in crude oil prices – Brent is already a painful $30 below the Royal Budget’s breakeven price.

While the Saudi debt/GDP ratio is not excessive at 34 percent, the kingdom has replaced China as the largest sovereign borrower in global offshore debt capital markets. So Saudi Arabia will do its best to appeal to Trump to moderate his “drill baby drill” rhetoric and divert the president from his strategy to go full throttle as a global LNG superpower.

Saudi Arabian oil production has fallen to nine million barrels per day (bpd), the lowest in four years, as it has borne a disproportionate share of Opec+ output cuts designed to stabilise the market. It is significant that Riyadh’s production capacity is now 12 million bpd, exactly what it was in 1980, the year two Opec founder members went to war when Iraq’s Saddam Hussein invaded Khomeni’s Iran.

Global oil demand was only 60 million bpd in 1980 and thus Saudi Arabia is no longer the sole powerbroker in Opec, the reason the kingdom forged its own Kremlin connection with Russia in 2016.

If sanctions are lifted, Saudi Arabia and Russia will have to reach a new modus vivendi on downstream market share within the Opec+ framework to prevent a 2014-2015 scale price war.

A surge in output from Guyana, offshore Brazil, offshore West Africa and Canada is also a harsh reality for Moscow and Riyadh, as is quota non-compliance by Kazakhstan, Iraq and Nigeria inside Opec+. Mediocre demand growth for petroleum products in China, the world’s largest oil importer, must also be factored in.

On the supply front, “maximum pressure” sanctions against Iran may help tighten the oil market but Trump is also holding out a diplomatic olive branch to Iran if it abandons its nuclear programme. This must be a tempting prospect for Tehran, now that it has lost its militia proxies in Lebanon and Gaza and its dynastic vassal state in Syria.

If post-Khamenei Iran decides to respond to Trump’s overtures and seals a grand bargain with Washington, all bets are off for the price of oil.

My guesstimate for Brent’s trading range in the first half of 2025 is $65 to $75.

However, 2025 is a game-changing year for world politics akin to 1918, 1945, 1989 and 2001. The volatility of black gold is certain to rise.