TheChek News Flow

Total capacity of ships on order overtakes pandemic levels despite uncertain outlook for global trade

Shipowners have ordered a record number of container vessels on the back of soaring profits, prompting warnings of profligate spending by the handful of large shipowners that dominate the industry.

The total capacity of container ships on order hit 8.4mn 20-foot containers in November, according to Braemar, reaching the highest level since the shipbroker began collecting data in 2000.

The record order book, which surpasses the level reached following a similar spending spree when disruption during the Covid-19 pandemic boosted earnings, have come despite uncertainty over the outlook for global trade.

“It’s a huge amount of investment in fleet growth. [Shipowners] have got money to spend,” said Jonathan Roach, container market analyst at Braemar.

But “the risk of overcapacity is there, particularly in an uncertain global economy.”

Shipping companies have been splashing out following a surprise surge in profits since late last year, when disruption caused by the Houthi militant group’s attacks on vessels crossing the Red Sea helped drive up the cost of shipping.

Italian-owned Mediterranean Shipping Company, which already has the industry’s largest fleet, led the pack with 107 container vessels on order as of November. CMA-CGM is close behind with 103 vessels.

But it is unclear how long the Red Sea attacks will continue to boost earnings. Meanwhile, incoming US president Donald Trump’s promise to turbocharge protectionism in the world’s largest importer is also threatening to hit global trade from next year.

Before the Houthi attacks, which have forced lines to sail longer routes and constrained the supply of ships, “you had lossmaking freight rates with a much smaller fleet than you see today,” said Peter Sand, chief analyst at shipping market tracker Xeneta.

“Imagine all carriers will return to the Red Sea. That will bring rates to the floor. The overcapacity will be so massive.”

Individually, the decision to order more ships when profits are high might “make perfect sense,” said Niels Rasmussen, head of shipping market analysis at industry body BIMCO, who pointed out that MSC was stocking up on vessels after deciding to end a ship-sharing alliance with rival AP Møller-Maersk and “go it alone” from next year.

But “when you add all other decisions up [by every shipowner] then it does look a little bit excessive.”

By 2026, container shipping supply is forecast to have increased 46 per cent compared to 2019, before a boom in ship orders began, according to Bimco. But the group only expects cargo volumes to increase demand by 22 per cent over the same period.

Bimco warned that if countries retaliate in kind to Trump’s threat to increase import tariffs, this could lead to even weaker global trade and container volumes than it has forecast.

While many ships have been ordered to replace ageing sections of the fleet, Rasmussen warned that it could be some time before older vessels are taken out of service. From June, an internationally agreed Hong Kong Convention will enter into force and set restrictions on which ship recycling yards can be used, based on environmental and labour standards.

“There are some capacity restrictions as to how many ships you can suddenly recycle in a year. You have to consider the Hong Kong Convention is coming into force. Those facilities that are there need to meet some strict requirements,” said Rasmussen.

The container shipping industry already faced similar premonitions of oversupply following its spending spree during the Covid-19 pandemic. Those fears were quickly assuaged when the Houthi attacks flipped expectations just months after the end of the health crisis.

Maersk, which only in February was bracing for a $5bn loss this year, is now forecasting an underlying profit of up to $5.7bn.

“If we had spoken 12 months ago, we could have had the same conversation about [oversupply],” said Johan Sigsgaard, chief ocean product officer at Maersk.

He said that Maersk, which has 47 vessels on order, was expecting ships to continue avoiding the Red Sea “well into 2025”.

“We see a more volatile world. [It will become] harder to predict situations around supply and demand,” Sigsgaard said.

Investment banks prepare for 2025 crunch

Boutiques counting on M&A rebound to support elevated valuations and star hires

Investment banks are bracing for a crunch year in which they must deliver a step-change in deal fees to justify record share prices and expensive hires made during a two-year downturn.

The six listed independent investment banks — Evercore, Lazard, PJT, Moelis, Perella Weinberg and Houlihan Lokey — reached record highs in recent weeks as investors anticipate a long-awaited recovery in mergers and acquisitions activity under Donald Trump’s second presidency.

Perella roughly doubled in value in the last year, while shares in bulge bracket investment banks including Goldman Sachs, Morgan Stanley and JPMorgan Chase also touched fresh highs in November and December.

“Barring some disaster in the economy, we should have just a nice upswing in activity across most parts of investment banking,” said Christian Bolu, senior analyst for US capital markets at Autonomous Research. 

But the extent of the run-up in banks’ stock prices adds to the pressure on executives and their new recruits to deliver revenues in 2025.

The price-to-earnings ratio of the public boutique firms has jumped to 30 to 40 times, nearly double the historical range. Boutiques’ M&A advisory fees edged just 1 per cent higher in 2024, according to LSEG data.

One longtime banking chief executive warned over excessive exuberance. “I can’t imagine it works out for everybody. It is a limited pie of deals. There is going to be a reckoning,” the executive said.

The independent investment banks have hired heavily in the past two years, taking advantage of the downturn to pick up star bankers to position themselves for a recovery in dealmaking. But it makes them reliant on those recruits to deliver substantial revenues in the upswing.

Evercore increased its base of managing directors — a senior title on Wall Street — by 27 per cent from the end of 2021 to the third quarter of this year; Moelis grew its number of managing directors by 26 per cent; Jefferies by 46 per cent.

Brian Friedman, Jefferies’ president, said 2021 to 2023 were his company’s most active period for outside hires since the two years following the 2008 financial crisis.

“Historically, periods of disruption and dislocation create opportunities. We capitalised on that opportunity,” said Friedman.

Wall Street groups paid handsomely for some dealmakers. After the pandemic-era boom investment banks guaranteed packages worth upwards of $9mn a year for two years to persuade high-profile personnel to move, according to senior investment bankers, although packages of $4mn were more common.

“The compensation numbers are staggering in some instances,” said Julian Bell, global head of the banking and markets group at headhunter Sheffield Haworth.

“It’s a consequence of banks protecting or growing market share in an industry where people are making such amounts that you can’t make good hires if you don’t offer big packages.”

Splashy hires included Jefferies’ recruitment of Chris Roop from JPMorgan in 2022, Santander’s hiring of David Hermer from Credit Suisse to run its US corporate and investment bank in 2023, and Evercore, which poached Goldman Sachs partner David Kamo in 2024.

Evercore chief financial officer Tim LaLonde said: “Heading into a strengthening market, we’re pleased we invested.”

The recruitment binge pushed up the median remuneration ratio — the proportion of a bank’s revenues eaten up by pay — by about 10 percentage points across Evercore, Lazard, Moelis, Houlihan Lokey and Jefferies compared with before the pandemic, according to Morgan Stanley analysts.

Chief executives have resisted calls to cut back on expensive hires in anticipation of a recovery in revenues in 2025 that would bring the ratio back to its historical 55 per cent to 60 per cent benchmark.

Lazard’s compensation ratio was 66 per cent in the first nine months of 2024, and the investment bank has set a target for it to fall back to 60 per cent in 2025.

Kevin Mahoney, managing partner at recruiter Christoph Zeiss Partners, said banks faced a tension over how much they were willing to guarantee a star banker to attract them, when it could take more than a year for them to start to deliver substantial fee-generating business.

“There is always the question of how much you can afford to warehouse people, knowing you’re paying big guarantees for the best of them who will likely contribute little to no revenue while they ‘ramp up’ — a process that typically takes 12 to 18 months or more.”

But he added banks often had little choice. “That’s how firms achieve long-term success in investment banking, particularly M&A.”

Many of the dealmakers hired at the tail-end of the last boom or start of the downturn will come off their guarantee period early in 2025, and will instead be paid based on the work they bring in.

“The vast majority of those people are coming off guarantees,” said one senior Wall Street investment banker. “All these people are going to be walking into 2025 and need to prove their worth to keep getting paid.”

China Services Activity Gauge Signals Pickup in Growth

The index has remained above the 50 mark for two years

A private gauge of China’s service activity expanded at a faster clip at the end of 2024 as Beijing moved to boost domestic demand.

The Caixin services purchasing managers index rose to 52.2 in December from 51.5 in November, Caixin Media Co. and S&P Global said Monday.

The index has remained above the 50 mark separating contraction from expansion for two years, Caixin said.

Both business activity and total new orders increased last month. Promotional efforts and better underlying demand supported the latest increase in new sales, according to service providers surveyed by Caixin.

However, orders placed by overseas clients fell, with the subindex dropping to the lowest level since December 2022.

Employment in the services sector contracted as businesses worked to reduce costs while improving efficiency, said Wang Zhe, a senior economist at Caixin Insight Group.

Companies were cautious about hiring, and market optimism weakened, Wang added. The subindex tracking expectations of future activity remained in expansionary territory but fell by more than three points.

“Competitive markets together with uncertainties over global trade were the main concerns of the surveyed businesses,” said Wang.

The Caixin services PMI pointed in the same direction as the official gauge that covers both service and construction activity. The official nonmanufacturing PMI jumped to 52.2 in December from November’s 50.0, with the subindex tracking service activity increasing to 52.0 last month.

That contrasted with manufacturing PMIs, with both official and Caixin gauges pointing to slower growth in the sector in December.

On the whole, the PMIs suggest that China’s economy gained momentum in December, with faster growth in services and construction more than making up for a slowdown in manufacturing, Capital Economics said in a note.

China’s ramped up policy support toward the end of last year has clearly provided a near-term boost to economic growth, assistant economist Gabriel Ng said, with increased fiscal support likely to keep lifting growth in the short term.

“But the boost probably won’t last more than a few quarters,” he added, with President-elect Trump likely to follow through on tariffs and the Chinese economy’s structural imbalances continuing to weigh.

Economists will be watching to see how Chinese policymakers respond to the tariff threat, and what they roll out next to tackle persistent domestic issues like the protracted property slump and weak demand.

Monday’s PMI print comes on the heels of fresh promises by the People’s Bank of China to support the economy.

Officials at the central bank’s annual work conference last week promised to better support technological innovation and stimulate consumption. They have also reiterated pledges to cut interest rates, as well as lower requirements on the amount of cash lenders must hold as reserves “at an appropriate time,” to help the economy, according to an official readout published Saturday.

Goldman Sachs analysts expect more high-profile monetary policy easing this year, including two 20-basis-point policy rate cuts in the second and fourth quarters.

In anticipation of possible tariff hikes from the incoming Trump administration, the Chinese leadership has vowed to make boosting domestic consumption a top priority for the year of 2025, with officials hinting that a muscular fiscal package will be revealed at March’s annual legislature session.

“The external environment is expected to become more complex this year, requiring early policy preparation and timely responses,” said Wang, the Caixin Insight Group economist.

“Future policy efforts should focus more on increasing household income and improving people’s livelihoods, with particular attention paid to increasing socially disadvantaged groups’ ability and willingness to spend,” Wang said.

Saks Global executives say the financing of the deal recapitalizes the company and positions it to settle up with vendors.

With the newly formed Saks Global, many designers and brands have much to look forward to this year.

Like finally getting paid and working with a recapitalized, stabler combined company with potentially different buying objectives and terms. And getting acquainted with new managers assigned to new roles to run the Neiman Marcus and Saks Fifth Avenue operations. A management structure that breaks the industry mold was unveiled in late December when Saks said it finalized its deal to buy Neiman’s.

Some store closings, such as Saks on Worth Avenue in Palm Beach, Fla., and consolidations of back office functions are to be expected. Business in Canada, where Saks Global’s parent company HBC operates Saks and Hudson’s Bay stores, is particularly tough.

The agreement by Saks to buy the Neiman Marcus Group creates a luxury retail empire in the U.S. including Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue and Saks Off 5th. Saks Global executive chairman Richard Baker managed to pull off the $2.7 billion acquisition with the support of Amazon, Salesforce, G-III Apparel Group and Authentic Brands Group and $2.2 billion in junk bonds, despite Saks owing its vendors hundreds of millions of dollars. While there were reportedly some hiccups in lining up the financing for the deal, Baker has proven himself time and again a whiz at orchestrating unorthodox retail and real estate deals.

Saks Global executives have issued assurances that vendors will get paid, but there’s no clear timetable yet. In his memo to his team on Dec. 23, a copy of which was obtained by WWD, Baker wrote: “I’m pleased to share that with the closing of the transaction, Saks Global has greater financial stability with less leverage and a newly funded revolving line of credit, providing significant levels of available liquidity. This financial structure enables us to make investments to better serve our customers and be a better partner to our vendors.”

Baker also wrote, “With the closing of the NMG transaction, HBC’s Canadian business has been recapitalized as a stand-alone entity, separate from Saks Global, with significantly reduced leverage.” He’s blamed challenges in the Canadian business for the shortfall in paying Saks’ vendors.

Marc Metrick, chief executive officer of the new Saks Global Group, told WWD that the transaction “recapitalizes the company and puts us in a much better cash position and much better position operating the business.” He also said that starting in January, “we will begin the process to work through the delayed payments. It will begin the first week of January. That’s when the process starts.”

To lead Saks and Neiman’s, a single management structure has been established with new leaders and senior positions and titles the industry hasn’t seen before, and fewer traditional roles, like no chief merchants. Saks and Neiman Marcus will be managed by one team, whereas Bergdorf Goodman will be managed separately, according to Metrick. Tracy Margolies, who was chief merchandising officer for Saks, has been appointed president of Bergdorf Goodman.

Also, Ian Putnam will serve as CEO of Saks Global Properties & Investments. Both Metrick and Putnam will report to Baker.

Emily Essner, forrmerly chief marketing officer at Saks, has been promoted to a new role — president and chief commercial officer — in which she will oversee the merchandising, marketing, commercial analytics and e-commerce operations for Saks and Neiman Marcus.

“The big takeaway first is that we believe there is a ton of talent at Neiman Marcus Group,” Metrick said. “When we get into the integration as we move forward, there will be a lot of cross pollination between the companies.”

Asked about possible store closings, Metrick replied, “This is about transformation, not consolidation. It’s about growth….There are redundant functions that are going to be rationalized. It will be a process we go through over time.”

Real Estate Developers Get Creative

Department store attrition and shifts in consumer spending patterns and lifestyles have compelled landlords to diversify their properties with housing, different experiences and new services.

Heading into 2025, shopping malls and developers are in a good spot.

Desirable available real estate is limited and shopping centers are transforming retail square footage into other uses, heightening the competition from brands and retailers seeking to open stores and putting landlords in strong lease negotiating positions. While there is little opportunity for ground-up development, property owners are becoming proficient at building new housing, either connected to a shopping center or nearby, converting underutilized parking lots into uses that generate greater revenue. They’re also signing new kinds of tenants, often small, local businesses prepared to grow and that provide something different from national brands.

“The main thing is that years ago we decided to look at each of our properties and create a unique strategy to merchandise and densify each and to really fit into the community as opposed to maintaining a one-size-fits-all approach,” said Eric Sadi, copresident of the malls platform of Simon, the nation’s largest real estate investment trust.

“That meant in some properties adding residential as a part of a larger redevelopment of a department store, adding a significant amount of food and beverage, and figuring out which brands are needed to create the right mix assorted specifically to an individual market,” Sadi said.

“Our team remains focused on elevating our shopper experience and attracting in-demand retailer brands and a diversified tenant mix, along with more food and beverage and experiential destinations,” Stephen Yalof, president and chief executive officer of Tanger, the Greensboro, N.C.-based operator of 39 outlet centers and one lifestyle center, said after the company issued its third-quarter results. “Our strategy is driving total rents, including our 11th consecutive quarter of positive leasing spreads, and we will continue leveraging our platform to realize additional growth.”

Americans, particularly during the 2024 holiday season, came out to malls and stores more often and in greater numbers than in the previous year. Shopper traffic at New York City area malls around noon on the day before Christmas this year was 12.3 percent higher than the same time last year, according to data from MRI Software, which tracks and forecasts footfall. On Black Friday, traffic at shopping malls rose by 8 percent compared to the same period last year, MRI reported.

On the redevelopment front, Simon has committed $1.3 billion for major projects over the next few years including Brea Mall in Brea, Calif., where construction is underway for new retail and dining options, a Life Time athletic club, and luxury apartments. The Southdale Center in Edina, Minn., is undergoing a multiyear “complete transformation” creating a luxury wing scheduled to open this year, and adding dining and entertainment venues and luxury apartments.

The Briarwood Mall in Ann Arbor, Mich., is being redeveloped with residential units, additional retail and community-driven, mixed-use offerings, including a Harvest Market restaurant and a grocery offering locally sourced products. Northgate Station in Seattle is in the process of adding luxury residential units and recently broke ground on its first on-property hotel, Residence Inn by Marriott. It’s set to open in the spring. And the Tacoma Mall in Tacoma, Wash., is adding new restaurants and retail and “The Village,” an expansion with new retailers, cafés and restaurants with outdoor dining terraces. Simon is considered the nation’s largest owner and operator of shopping, dining, entertainment and mixed-use destinations.

Macerich, among the nation’s largest shopping center developers, is redeveloping the FlatIron Crossing Mall in Broomfield, Colo., with housing. Kimco Realty’s Westlake Shopping Center in Daly City, Calif., is converting a former Burlington Coat Factory into housing. And Westfield’s Garden State Plaza in Paramus, N.J., is adding apartments.

Real estate from closed department stores isn’t just sitting dormant either. For example, a Sears store in Portage Park, a suburb of Chicago, closed in 2018 and was converted into 6 Corners Lofts, a 206-unit, loft-apartment building with a Target, a glass atrium, dozens of additional windows and balconies, a top floor lounge with a speakeasy and a rooftop swimming pool. Novak Construction reportedly invested $90 million in the project.

In the U.S., there are about 112,000 shopping centers of one kind or another, including traditional malls, lifestyle centers and outlet malls. Among the more interesting retail developments is Belmont Park Village, a 340,000-square-foot off-price center on Long Island for luxury brands and the kind of upscale experiences and services typically associated with the designer sector. Located in Elmont, Long Island, adjacent to the Belmont Park racetrack and the UBS Arena, Belmont Park Village is part of the Value Retail portfolio which operates The Bicester Collection of open-air, service-oriented luxury outlet centers in Europe and China. Belmont Park Village, the first North American outpost of the collection, expects to house about 160 shops.

The Brixmor Property Group is redeveloping Heritage Square, 30 miles west of Chicago in Naperville, Ill., into “a restaurant district” called Block 59. The project involves demolishing a great deal of real estate. New restaurants are seen opening this year and Brixmor expects to complete the project in 2026. Heritage Square sits within Brixmor’s larger, 555,000-square-foot Westridge Court, where in 2021 the REIT completed updates on the facade, lighting, parking lot, sidewalks, landscaping and signage.

On a smaller scale, The Mirai Design District, the first mixed-use project in the U.S. by Kengo Kuma & Associates in Tokyo and Paris, broke ground in 2024 and is expected to open by the end of this year. Kengo Kuma said in a statement, “The purpose of MIRAI is to fashion a space that not only frames the natural tropical elements of Miami but also harmonizes seamlessly with its surroundings. It’s about providing a haven that exudes tranquility and comfort, inviting all who visit and inhabit to partake in the essence of the vibrant city — a sanctuary where dreams can take flight amid the lush beauty of Miami.”

Mirai, which translates in Japanese to “the distant future,” is being designed with 17 modular retail units, totaling about 15,500 rentable square feet, four commercial units, offering about 41,000 square feet, high-tech lobbies, operable windows, VRS systems and a living green roof with solar panels.

On a massive scale, Vornado Realty Trust has been transforming Manhattan’s Penn District, the area around Penn Station and just south and west of Macy’s Herald Square. For the last three-and-a-half decades, Vornado, among the city’s largest property owners and developers, has been buying up real estate in the district, accumulating 10 million square feet of office space.

Vornado has redeveloped Penn 1 and Penn 2 into state-of-the-art office complexes, with lounges, restaurants, outdoor plazas, conference areas and health and fitness facilities open to the public. Beyond the office space, Vornado has made several other major changes to the area, including redesigning and upgrading 33rd Street starting at Seventh Avenue and going west into a pedestrian way with a courtyard, new restaurants, outdoor seating and greenery, leading to Madison Square Garden and the Moynihan Station transportation hub.

Vornado has also modernized Penn Station, and demolished Hotel Pennsylvania to eventually redevelop the site, and attract new retail to the area. Vornado executives consider Penn District now “a campus” that is safer, cleaner and far less chaotic, and conducive to staying after work for drinks, dining, exercise, events, or just hanging out, rather than rushing to get out and get home.

Between the building of the brand management houses, a revamping of strategics and companies sitting in private equity portfolios, the industry could see more M&A this year.

There was more than a little jostling for fashion’s dealmaking spotlight as 2024 wrapped up.

Richard Baker’s HBC closed on its long-awaited acquisition of Neiman Marcus Group just before Christmas and, on the same day, the Nordstrom family inked their agreement to take Nordstrom Inc. private.

And in the seemingly always-active game of snapping up intellectual property, WHP Global closed out the year with a deal to buy Vera Wang, while Marquee Brands brought Laura Ashley on board just as 2025 dawned.

It was a flurry of activity after what has been a relatively slow stretch for many dealmakers (outside of the brand management space, which is expected to keep building using its IP-heavy model).

While an uncertain consumer and economy, still-high interest rates and political uncertainty held many dealmakers back in 2024, the high-stakes world of mergers and acquisitions might be starting to change.

“M&A activity within the consumer markets industry appears to have found its footing, with growing consumer and executive confidence, easing overall financial conditions and post-election bullishness injecting confidence into the market,” said consultancy PwC in an outlook on dealmaking in the consumer space.

The steady, but slow market reflects “experienced dealmakers’ ability to stay on strategy and realize value despite the slowdown,” PwC said.

“Companies in the industry continue to leverage divestitures to rebalance and optimize their portfolios, as well as to unwind underperforming former acquisitions,” the outlook said. “Looking forward, we expect corporates to consider M&A as a lever to help address the challenges posed by the new tariff regime, safeguard their supply chains and protect their bottom line.”

Before the U.S. election, there was also a good deal of uncertainty around how closely regulators would scrutinize big deals, particularly after the Federal Trade Commission succeeded in its effort to stop Tapestry Inc.’s $8.5 billion buyout of Capri Holdings.

With Donald Trump in the White House, regulators are being seen as more ready to give deals the green light.

So private equity companies that have been sitting and waiting for a better market to flip their investments might be ready to make their move if the economy holds.

“Higher interest rates and valuation gaps have led to delayed exits within private equity portfolios,” PwC said. “Aged investments, particularly within the food and beverage and household and personal products subsectors, are likely to see liquidity events in the near future.”

In fashion, Golden Goose could be a kind of poster child for the trend.

Permira acquired the luxury sneaker brand in 2020 and tried to make its move last June with an initial public offering that was ultimately pulled at the 11th hour amid turmoil in European stock markets.

Golden Goose said the process would be “reassessed in due course,” putting the company among those looking to make some kind of a deal.

While the private equity players typically look to hold onto investments for three to five years, there are plenty of fashion companies that have been sitting in the big money portfolios for that long or longer.

There are also fashion companies looking to make a move for strategic reasons.

Capri Holdings is said to be shopping Versace and Jimmy Choo with the help of Barclays, a process that’s come in the aftermath of the failed Tapestry deal and amid weakness at the company’s biggest business, Michael Kors. Tapestry, meanwhile, is said to be looking to sell its Stuart Weitzman subsidiary.

And then there are the hot players that are biding their time.

Kim Kardashian’s Skims, which has been going from strength to strength and is now rolling out stores, is said to have laid the groundwork for an IPO.

The ultra-fast-fashion player Shein is also said to have looked at a mega IPO, although an offering on Wall Street was held up by lawmakers who are wary of the company’s Chinese roots and business model. Now the company’s IPO hopes appear to be pinned on an offering in London.

If the stars align — which is always a big if in dealmaking — 2025 just might be the year for Skims, Shein and others in fashion.

Trump’s ambitious oil plans will not derail Russia

It would still be very disruptive to try to embargo Russian oil from the world markets altogether

Donald Trump’s gleeful “Drill, baby, drill” pledge chimes with the idea of weaponising America’s status as the world’s largest oil producer to strip Russia of the oil revenues funding its war in Ukraine. This line of argument usually has two main points: that the US could flood the market with its crude, driving prices lower and pushing out expensive Russian barrels, and that increased US production could make it possible to embargo and sanction Russian oil exports altogether without causing a shortage and sending prices sky-high.

There is already a wave of scepticism among both oil industry analysts and insiders over the viability of the 3-3-3 economic plan announced by the Treasury secretary nominee Scott Bessent. This includes increasing US oil production by 3mn barrels a day, or an energy equivalent, by 2028. The cost structure of shale oil — the main growth engine of US oil production over the past 15 years — is such that, according to the Dallas Fed, oil producers need on average a forecast of $64 a barrel price to drill a new well. Quite a few existing wells would be shut down if the price falls below $50 a barrel. The government might cut some red tape and make more federal land available for drilling, potentially offering opportunities for more prolific wells with a lower break-even price, but those changes would not have a drastic impact. 

The irony is that the Biden administration, for all its green measures and talk, has not been too hard on the oil industry, so there is little additional pressure that the Trump administration could remove. Theoretically, it might stimulate additional production by reducing the royalty charged on barrels produced on federal land, but that royalty rate is already much lower than in most of the world. Another possibility would be to offer production-stimulating corporate income tax cuts, but that would contradict other elements of Bessent’s plan. Even if the plan to increase oil production works, its target date of 2028 will certainly not help Trump enact his promise to stop the war in Ukraine during his first weeks in the Oval Office. 

Oil production growth in most places — Russia included — is usually the result of activities performed and planned long before the fact, during the fat years. Today, Russia does not have many sources for continuing oil production growth: most new projects have been mothballed since the full-scale invasion of Ukraine in 2022. Russia might even struggle to maintain a plateau once it eats through the inventory of the approximately 1mn-barrel-a-day spare capacity that was taken offline under Opec+ agreements.

But it would not cost much for Russia to maintain a manageable decline of 2-3 per cent a year. By some estimates, the average cost of producing, processing and transporting the oil to export terminals from the existing wells in today’s Russia is $11-$12 a barrel, and $17 a barrel with drilling and development costs within existing fields. That has been creeping up with inflation, but it is mostly rouble-based, so a weakening rouble drives dollar costs lower. Even assuming that the US plan works and the US and Saudi Arabia agree to bring prices below $50 a barrel, it is unlikely that this would make Russia curtail its oil production.

It’s true that the country’s trade balance would suffer in such a situation: a $10-a-barrel change in the export price translates to $25bn a year, but that is less than 7 per cent of total Russian exports and even less than the annual current account surplus now. There will be extra losses from gas trade, as gas prices in Chinese contracts are linked to the oil price, but the volumes are far smaller.

Nor will the hoped-for 3mn barrels per day of additional US production be enough to replace the 7mn currently exported by Russia. As a result, it would still be very disruptive to try to embargo Russian oil from the world markets altogether. That strategy mostly worked with Iran in 2018, but there were only 3mn barrels of export volumes to replace. Russia plays a much bigger role in the global oil markets and there is no quick fix that can change that, even if everything goes according to Trump’s very ambitious plans and campaign trail promises.

Since the beginning of the war, the west has managed to put a dent in Russia’s oil revenues, but it is now struggling to reduce them further. So far, Trump and his associates have not produced a plausible breakthrough strategy for the short to medium term. It is accordingly wise to design plans and strategies regarding Russia around the assumption that its oil revenues remain quite resilient and cannot be drastically reduced.