The Trump administration was reportedly considering lifting energy sanctions on Russia last week as part of discussions to end the war in Ukraine, per Politico. Those plans could include restarting the Nord Stream 2 natural gas pipeline, which could prove to be a major financial boon to Moscow.
Meanwhile, U.S. Secretary of State Marco Rubio has denied the rumors.
It remains to be seen if European markets would even be interested in that natural gas, says Matt Smith, energy analyst for Kpler. He joined the Texas Standard to discuss what a reversal of Russian energy sanctions could look like for the global market, plus an update on how the trade war is impacting the energy industry.
Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: A lot has happened over the weekend, but last week there were rumors anyway about the White House lifting sanctions on Russian energy assets as part of negotiations on ending the Russia-Ukraine War.
Now, wouldn’t lifting these sanctions be a pretty big win for Russia?
Matt Smith: It would be a huge development for them, given the potential revenues that it could bring. That said, though, it’s not a slam dunk or guaranteed that the EU, the European Union, would take that natural gas if sanctions were lifted, because, after all, they’ve spent the last few years trying to diversify away from it.
But really, from a bigger picture perspective, lifting of such restrictions would also be a large concession from the U.S.
But then the final piece of it is this will be a real bitter pill for Ukraine to swallow because, after all, you’ve got Russia as part of some type of agreement here to end the conflict, they’re looking to do a land grab and Ukraine isn’t willing to give up Crimea. And so it seems a little unfair on them.
That said, the White House did deny that the discussions about easing sanctions had taken place. So I think it’s very much a moving target or a fluid situation with things right now.
Yeah, and we should underscore they were rumors. They were not confirmed – that the lifting of these sanctions was ever on the table, and even then President Trump met over the weekend with President Zelenskyy at the Pope’s funeral.
Does that say anything or does that make it even less likely, in your thoughts, or what do you think?
Well, it feels like there has been a shift, a sort of a change in tone, from the U.S. – not just because of how the meeting went between Zelenskyy and Trump at the Vatican. You know, when they first met in the White House, it went very badly for Zelenskyy, but it seems that this has done a lot of ground to to repair that.
But you know, it’s also been the recent behavior from Russia. Russia has been attacking Kyiv in the last week. It has been shooting missiles into civilian areas and cities and towns over the last few days. And so President Trump is maybe coming around to realize that perhaps Russia and Putin don’t want peace.
And we talked about easing sanctions. Trump has raised the prospect of applying new sanctions after these assaults on Kyiv. But then again, this morning we’ve had the Kremlin coming out and saying that they reiterate Russia’s ready for unconditional peace talks.
And so again, it’s just very much a lot of moving pieces right now.
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Well, switching gears, but there’s really a firehose of information flooding energy markets at the moment, including Energy Secretary Chris Wright in Oklahoma last week trying to reassure U.S. oil companies that the government fully supports more crude output. What do you make of that?
I mean, it’s a tough sell, right, in that it’s prices – not presidential pressure – that dictate oil production in the U.S.
The U.S. administration may say it fully supports more crude output, but that’s in direct contrast to them wanting lower prices at the pump. You can’t have both of those things.
Current prices for oil are at a critical juncture here, at a price of around $60 a barrel. That’s a level where many companies are very close to break even on drilling new wells.
And so if we see prices move any lower from here, we’re going to start to see production dropping off. And we may be seeing at these levels already later in the year. So those two things don’t jibe together, right?
Well, Chris Wright also said turmoil from President Trump’s trade war is likely to be fleeting. So first of all, do you think that’s the case? And if so, do think oil prices rebound back to the $70 a barrel price or even higher?
So we don’t believe that the trade war is going to be fleeting.
Granted, there are going to be deals done in the next few weeks or months with certain countries, but it’s going to be an ongoing issue with China here, and so this is something that’s going to go on for a good number of months. It’s already starting to hit sentiment in financial markets, and it’s already starting to slow the global economy.
But even if we did get resolution across all these trade wars, we don’t believe that prices would rebound back to the $70s here. We’ve got a lot of supply coming to market here in terms of oil as we move into the second half of the year and demand growth is just slowing because of everything that’s happening with all the uncertainty with the trade war stuff.
So no, it seems prices could move lower rather than higher from here, regardless.
