this video is brought to you by Nebula when Trump announced his sweeping tariffs on so-called liberation day one of the notable emissions on his chart of doom was Russia the White House claimed this was because thanks to Ukraine related sanctions the US no longer has a meaningful trade relationship with Russia but this doesn't really stack up the US still does billions of dollars in trade with Russia and other countries that do far less trade with the US like the uninhabited Herd and McDonald's islands were still hit with tariffs at first glance this all looks pretty good for Russia no tariffs are better than some tariffs and this is yet more evidence that Trump still wants a closer relationship with Putin unfortunately for the Kremlin however one of the secondary consequences of Liberation Day has been a collapse in oil prices which will dramatically reduce the Kremlin's muchneeded oil revenues so in this video we're going to explain why oil prices have crashed and why even if it's not yet a disaster for the Kremlin history suggests prices could fall further [Music] we're getting remarkably close to a million subscribers and currently 72% of you haven't yet subscribed so lend us a hand and subscribe today so let's start with a bit of context since really the pandemic oil prices have been relatively high with the Brent crude benchmark which basically reflects the average international oil price hovering around $80 a barrel this is both higher than the historical average and arguably understates the true cost of oil during this time because oil imports are usually denominated in dollars and the dollar was also pretty expensive you can see this by looking at the so-called dollar index which measures the dollar strength against a basket of currencies the dollar saw a surge in value throughout 2021 and never really fell back this made oil imports even more expensive for every country apart from America because they usually had to convert their domestic currency into dollars and then buy their oil this was all great news for Putin because Russia is one of the world's biggest oil exporters and oil revenues helped fund its war in Ukraine now sanctions meant that Russia had to sell at a discount you can sort of see this if you compare the Brent crude benchmark with another benchmark known as the eurals which essentially measures the price of oil cargos loading at Russian ports while there used to be very little difference between these two benchmarks a gap opened up after Russia's invasion of Ukraine and for most of 2022 and 2023 Russian oil was being sold at about a $10 per barrel discount although that gap has since closed somewhat nonetheless even though Russia was selling its oil at a discount global prices were still high enough that the Kremlin was raking in enough cash in fact according to the Oxford Institute for Energy Studies Russia's energy revenues actually increased in 2022 and while they fell slightly in 2023 they were still basically at the same level as 2021 a lot of this went to funding Putin's invasion of Ukraine with oil and gas revenues accounting for about 35% of the federal budget unfortunately for the Kremlin however that could all be about to change since Liberation Day oil prices have created with Brent crude falling from about $75 per barrel at the start of last week to about $60 at the time of writing again this understates the true decline because the dollar has also been weakening for the past few weeks this is largely because traders are now anticipating a global recession which will mean weaker demand for oil but also because there's been an increase in global supply this is mainly because Saudi Arabia has started pumping more oil unwinding the voluntary cuts that it implemented last year to keep prices high but also because there's new supply coming online from recently developed oil fields in Brazil Guyana and Norway given that Reuters reported Euro's price had fallen to $53 a barrel last Friday when Brent was trading at $63 a barrel this means Russian oil is probably selling for about $50 a barrel at the moment a drop from $70 to $50 might not sound that bad but once you take into account the fact that it costs Russia about $20 to pump a barrel this means that the Kremlin's profit per barrel has now nearly been cut in half from about $50 to $30 russia's gas industry isn't having a great time either gas prices will probably fall with oil prices and Russia is struggling to replace its pipeline exports to Europe china was already digging its heels in over the new Power of Siberia pipeline demanding that Russia offer lower prices but this now looks even less likely to happen given the recessionary impact Trump's tariffs could have on China's industrial sector now to be clear at the moment this all looks pretty bad for Russia but it's not unmanageable if prices were to stay around $50 a barrel it would probably force Russia to run a budget deficit in the region of about 3 to 4% of GDP around the upper limit of what the Kremlin could afford given its difficulty in finding creditors however there are reasons to think prices could actually fall further in the near future for two reasons first it looks like Saudi Arabia which has the lowest pump costs of any country in the world wants to push prices even lower which is why they scheduled an impromptu meeting to announce their supply increases just hours before Trump launched his trade war this is both because they want to bankrupt American shale producers who can only pump profitably when prices are around $65 a barrel or higher and will struggle to roll over their debt with surging interest rates in the US and because the Saudis want to punish other members of OPEC plus i.e the international cartel of oil producing states who have secretly been pumping more than they should for context all OPEC plus members are supposed to agree to produce a certain amount of oil but as with any cartel there's always an incentive for OPEC plus members to cheat and pump more than they say they will this has happened more and more in recent years with the worst offenders being Kazakhstan Iraq and the UAE forcing Saudi Arabia to voluntarily cut its own production to keep prices stable even though that means less cash for the kingdom the Saudis have apparently decided to take this opportunity to push prices lower squeezing these cheaters profit margins now to deter them from cheating again in the future second demand might be even weaker than people think there are echoes of the 1997 Asian financial crisis here when a combination of OPEC cuts and persistently weak demand post crisis pushed oil prices below $10 a barrel this would be truly catastrophic for the Kremlin and Putin will be hoping that either Trump or the Saudis blink before then this story like much of the news is worth paying attention to in the weeks ahead because with geopolitics in flux and Trump throwing the international order up in the air there's a 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