Market participants and beyond are akin to teenagers gathering on a street corner, under a dimly lit streetlight, waiting for something that makes sense of the darkness. Today’s dose of anxiety comes in the form of negotiations between the White House and the Kremlin over Ukraine’s future. We discuss one aspect of Russia through an oil lens below, but logic suggests that Moscow will ask too much during the Trump/Putin phone call. Demands on the nationality of any peacekeepers deployed and Ukrainian recognition of lands taken as ‘Russian’ are contentious enough to believe the talks will fail. However, the White House smells a deal, or at least the whiff of the trail of one concocted by the Kremlin and you would be gambler to predict what might be the conclusion after the imagined red hotline phone is placed back into its cradle. The permutations run wild in the flow chart musings of the world and one can only hope that the outcome is, assuming one appears, palatable and calming for all.

Meanwhile, markets are still in the process of flight. Gold has punched a high of $3014/ounce and because of the promised new stimulus in China, the emergence of DeepSeek and slightly better economic metrics, the Hang Seng has since the beginning of the year rallied to a 3-year high. The US markets’ mantra of TINA (there is no alternative) is now challenged, made worse by the US President and the Secretary of State unable to rule out a US recession. With the 2-day meeting of the Federal Reserve also starting today and rate decision tomorrow, the up-until-now rosy outlook for all that is American is bunkered.

For oil prices, the Middle East has once again entered thinking. Following on from the US vow to continue a campaign of bombing in Yemen, Israel overnight made extensive airstrikes in Gaza. The Associated Press reports that Israel’s strikes on Gaza have killed at least 235 people, according to local hospitals. Benjamin Netanyahu ordered the strikes because a ceasefire extension is being avoided and repeated refusals by Hamas to release the remaining Israeli hostages. Breaking the ceasefire by attacking to gain another ceasefire defies all logic, but since when does that apply to the Middle East? Jeopardy also comes from how an attack during Ramadan will be received by other neighbours of Israel. The idea of a spreading conflagration no longer applies from the Gaza war alone, but the emotive geography and its ability to allow unspeakable acts adds another edge that worries oil prices into reaction.  

Russian energy will find customers hard to come by

Pinning certainty to a path of conclusion, if a miraculous end to tariffs and sanctions suddenly came upon us, is presuming that all the facts will be available and that contemporary states of trading were resumed. ‘Normal’ itself is a dysfunctional concept, it assumes an average behaviour which humans crave in order to map and explain. Our current world puts any such notion firmly into ridiculousness. The world is forever changed, the triumvirate of COVID, the Ukraine war and Trump II puts paid to expectation and why the world financial markets scream in frustration as they await as to where the overturned table of global trade falls.

Bearing in mind today’s phone call between Presidents Trump and Putin, it seems only reasonable to look at how any resumption of energy trading ensues with asset-rich Russia as it, if possible, descends into an even more pariah status, well at least from most of a G-7 point of view. In 2021, Europe received 155 billion cubic metres (bcm) from Russia. That equated to some 45% of European total gas imports, and purely using hindsight eyes, making it strategically vulnerable. However, it is always a truism no matter underlying concerns they will always be smoothed by price in international trade. Post-invasion, between European sanctions and Russian belligerence, gas supply was weaponised and last year total European imports from its Eastern neighbour amounted to just short of 30bcm, 14.5 from Ukraine transition and 15bcm via the TurkStream pipeline which mainly serves Serbia and Hungary.

A return to pre-war custom for Russia into the old continent might be on the strategic targets of Moscow as it considers the peace deal which the US President is peddling. The Kremlin has even floated the idea of opening up Nord Stream2, which portrays a confidence that Europe might not be as united as it appears when talking tough over Ukraine. Duplicity and parochial issues abound as seen in how long it took certain countries to abide by sanctions and price cap. However, such behaviour was and is understandable until alternatives were put in place. The nations of Europe have been busy with term deals in LNG from the US and Qatar among others in negotiation and have been about building infrastructure to receive the vast ships that carry the liquified gas. A commission was also set up, namely REPowerEU, with a remit to enable the ‘green deal’ of carbon zero by 2050, alongside reducing the strategic vulnerability of relying on Russian energy in any form. One cannot dismiss any future supplies of fossil fuels from Russia, as stated, price is the most powerful arbiter and even Russian LNG has found European markets. Yet the barriers against Russian energy are made stronger from its historical best customer and even if a sanctions reprieve allows more gas to get to water, one questions whether Russia has the liquification and shipping to service exports and if there is a customer equivalent in size of Europe to receive that is not already serviced elsewhere.

At the start of this year and under the fresh US sanctions on Russia’s oil capabilities, the contractual issues and misgivings of China to not upset the incoming President Trump, saw Russian cargoes floating off the coast of Shandong and a scramble for other crude grades in Asia. Uneasiness is still being witnessed from China buyers today. Vortexa estimates China takes around 800kbpd of the Russian grade Espo, 600kbpd of which is via pipeline. However, according to Energy Intelligence the state-owned oil companies, CONOOC and Unipec have stopped buying Eastern Siberia-Pacific Ocean crude. E.I. quoted sources as saying the vast oil companies should not have to worry about US repercussions at present but are wary of potential new measures.

Therein lies the rub. In the dreamy outcome that Trump and Putin put the phone down later today and announce a thumbs up to a ceasefire plastered across multi-media, it will not mean a cavalry charge from new and old buyers alike lining up for Russian gas and crude. Russia is a reliable foe and a mean operator, the US administration is just unreliable, and in some ways offers more dangers to energy strategies. There will always be buyers for Russia to play with. There is little doubt that Turkey, Hungary, India and many others that enjoy a discount will be happy to feed around the edges of legalities. But that is not the same as demand from the big-ticket buyers. Russian fossil fuels might at some stage resurge in abundance without sanction shackles, but under a world of ticker-tape politics and ‘hit me while I am hot’ policy offers, does not mean the energy largesse will be lifted.

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