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US President Donald Trump has once again caused a major upheaval in international diplomacy and the global energy market. Trump suddenly shared a sensational post on his social media platform ‘Truth Social’ claiming that an immediate ‘Energy Ceasefire’ has been agreed between Russia and Ukraine not to target energy infrastructure. Trump wrote in a very strict tone – “Energy ceasefire has been implemented in the war between Russia and Ukraine with immediate effect. Both sides have agreed on this. It should not be broken at all!”. The statement came at a time when Ukraine’s long-range drones were continuously targeting Russian oil refineries, depots and shipping terminals, causing severe disruption to the global fuel supply chain. This unexpected claim of Trump has shocked oil traders, diplomats and stock markets all over the world.
Within hours of Trump’s unilateral announcement, serious questions were raised on the credibility of this so-called ceasefire:
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Statement of the President of Ukraine: Ukrainian President Volodymyr Zelensky clearly said in an interview to international media that Trump’s ceasefire announcement is like ‘news for me’ for him. He said that if America has reached an agreement with Putin on this and Russia stops its attacks, then Ukraine can also consider it. But he alleged that despite this announcement, Russia has continued to attack Ukraine’s energy installations, especially the power plant in Kharkiv.
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Kremlin’s stance: There has been no official confirmation from Moscow on this so-called complete ceasefire. Although just before this, Trump had announced a diesel supply agreement with Russia to control the rising prices of diesel in the domestic market, but the signatures of the two countries on the formal ceasefire treaty with Ukraine have not yet been revealed.
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Skepticism of military experts: Experts believe that unless formal orders are issued from the command centers of both the armies, it would be premature to consider a mere social media post as a ceasefire.
As soon as Trump’s statement came to light, the movement in Crude Oil Futures prices in the international commodity markets intensified:
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Fall due to expectation of reduction in supply disruptions: There was a perception in the global market that if Ukrainian attacks on Russian refineries stopped and Russian fuel entered the market smoothly, the supply shortage would be resolved. Due to this, the price of Brent Crude slipped to around $ 104 per barrel in early Asian trading.
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Middle East break on decline: However, there was not a huge fall in the prices of crude oil. This is because the Iran-US tension over the Strait of Hormuz in the Middle East and the attacks on Saudi Arabia’s Riyadh Airport have kept the risk premium high in the oil market.
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Effect of doubt: The market is still not completely convinced about Trump’s claim. Until there is official confirmation from both Russia and Ukraine, oil traders are refraining from aggressive selling.
If this energy ceasefire proves true on the ground, it will have far-reaching consequences on the global energy landscape:
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Restoration of Refinery Capacity: About 10 to 15 percent of Russia’s oil refining capacity was affected by Ukraine’s attacks. If these attacks stop, diesel and gasoline exports from Russia will normalize, reducing international refining margins (crack spreads).
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Normalization of supply chain: With the removal of the threat of attacks on Russian ships and energy terminals in the Black Sea and Baltic Sea, insurance premiums and freight rates will normalize.
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Screws of sanctions and deals: If the US actually legalizes fuel import or supply deals from Russia, relations between Europe and the US may sour, but this will have direct bearish pressure on global oil prices.
This development is very sensitive from India’s point of view. India imports more than 85% of its domestic crude oil needs and Russia has been India’s largest crude oil supplier. If the attacks on Russian refineries stop and the global oil market stabilizes, international crude oil prices will remain under control. This will directly benefit Indian Oil Marketing Companies (OMCs), their profits will improve and the threat of possible increase in retail prices of petrol and diesel in the country will be averted. Also, reduction in import bill will strengthen the Indian rupee. But if this ceasefire remains limited to mere rhetoric and both countries intensify retaliatory attacks on each other’s oil infrastructure, then crude oil prices may again rush towards record levels. The coming 48 to 72 hours will decide whether Trump’s claim was a real step towards global peace or just a diplomatic gimmick.