Donald Trump’s ‘Diesel Deal’ and ‘Energy Ceasefire’

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0:31From the opinion pages of the Wall Street Journal, this is Potomac Watch. President Trump continues to royal global politics as he proved again over the weekend. First, he announced a deal with Vladimir Putin to buy 36 million barrels of Russian fuel, plus a new energy ceasefire, as he called it, between Russia and Ukraine. But Russia keeps bombing Ukraine. What's going on here with the ceasefire? Is it real or not? Mr. Trump also said he may resume a military campaign against the Houthi allies of Iran in the Middle East after the Houthis bombed the airport in the Saudi Arabian capital of Riyadh.

1:18Will the president come to the aid of America's Saudi allies? allies. I'm Paul Gigo on the Wall Street Journal opinion page. And those are the subjects of our Potomac Watch podcast today with Jillian Melcher and Elliot Kaufman, two Wall Street Journal colleagues who follow global events carefully. Let's start with the Russian diesel deal. And listen to the president last week talk about the deal he cut with Vladimir Putin. I think you heard about the oil deal with Russia. That is a big deal. That is massive amounts of oil coming into our country. And I want to thank President Putin, to be honest with you.

1:55We have massive amounts of oil coming into our country, and it's diesel, which is what we want. So thank you. Well, Jillian, what do you make of this diesel deal? First of all, it sounds like a lot of barrels, but it's really not likely to move the oil market much, is it? So that's absolutely right. I mean, to put this into context, if you're looking at the average daily use of distillates last year, that's the category that includes mostly diesel. This is less than a two day supply. It's not going to have a significant impact on energy prices. And by the way, it's not even a sure thing that 3 million gallons of that, or 3 million tons of that rather, is going to be delivered.

2:39Trump was saying in his Truth Social post that that is contingent on the state of Russian refineries, which have been under Ukrainian assault. What we do know about this deal is that's a lot of money for Russia. And Russia relies on revenue from oil and gas sales to finance the war in Ukraine. I was talking to one expert who was saying that he anticipated the Russian energy companies will make about$4.5 billion off of this sale. That's a huge injection of cash at a time when Russia was feeling the financial pinch from both Western sanctions and Ukrainian strikes. And that money is for sure going to be plowed into weapons that Vladimir Putin is going to use to terrorize Ukrainian cities and Ukrainian civilians.

3:22And it also makes it much less likely that he's going to have the incentive to seek peace. That's the question, isn't it? I mean, Trump seems to be playing this bigger game of trying to get a deal with Putin and Ukraine. He wants to get a peace deal. And the question is, does this is this accommodation, this gift, in essence, to Putin buying his oil in order to give Putin some money? Will this be be an incentive for Putin to say, aha, OK, I'm going to do a deal with with Ukraine now that the president is is doing this for me? You're saying no. Why do you say that? Because Vladimir Putin is not going to make peace until this war becomes too costly for him.

4:10You haven't seen him budge in his war aims. And he's basically pocketing this U.S. concession of sanctions relief without offering anything on his own related to the Ukraine war. The lesson he'll take from this is that he can continue to finance the war and that he can outlast Western will. And neither of those things are factors that will push him closer to negotiating or to making Russian concessions. Elliot, what's going on here? Why do you think Donald Trump is doing this? I guess that the narrowest explanation politically would be he has an election coming up. Diesel prices are really high.

4:46In the Midwest, in particular, diesel prices are hurting Republican prospects. But if it's not going to make a huge difference to diesel prices right away, then what is he hope to get out of this other than somehow buying some goodwill from Putin? I think it's a combination of those two, because he has been reaching everywhere for more diesel. Get more diesel on the market. Getting more ships through the Strait of Hormuz has done wonders for the oil coming on the market, but not diesel. And so what's actually making the biggest difference in that market is new releases coming up from the European Strategic Reserve.

5:27That is going to do far more than what they're getting from Russia. And that was agreed to last week. Agreed to last week with U.S. pressure, but Europe needs it too. Prices there for diesel are even higher than they are here. But I think President Trump has long wanted to move this Ukraine-Russia fight in a direction of easing some sort of energy ceasefire. Russia hasn't shown the interest. So we can keep trying with these things until Russia shows a real interest in it. I think we're just going to be going back and forth. All right. We're going to take a break. And when we come back, we'll have more with Jillian Melcher and Elliot Kaufman on the maneuvering with Russia and Ukraine when we come back.

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6:50Just hit that button and you'll start getting the world's hardest working newsletter delivered directly to your inbox Monday through Friday. If you aren't a journal subscriber, the newsletter is free, but we are going to need your email address. There's a lot of fun stuff in the newsletter that you can only read in the newsletter, and I don't want you to miss any of it. Sign up for free expression today. We'll see you in your inbox. Welcome back. I'm Paul Gigo here on Potomac Watch with Jillian Melcher and Elliot Kaufman. Let's address this energy ceasefire, which the president announced unilaterally, I should say, after some criticism of the diesel deal came through from various quarters.

7:33And let's listen to him announce this and talk about what he expects from the Ukrainian president, Vladimir Zelensky. He wants to make problems for our farmers, our ranchers with diesel fuel, because Russia supplies a large portion of the diesel fuel throughout the world. And we told him, do whatever you want, but don't hit the diesel fuel because there's a big problem. And what does he do? He goes and hits the diesel fuel. He can do whatever he wants, but he can't do that because we have a world problem. And the problem is caused by the lack of refineries for diesel fuel. So what does he do? He goes and hits refineries.

8:14And I said to him, do what you want. Don't hit refineries. There's plenty of targets. Don't hit refineries. And he went out and he hit. And he's not going to affect our farmers. And he's not going to affect our ranchers. And he's not going to affect the rest of the world. So he better damn well stop. And you know what I suggest? I suggest they get a new leader who can make a deal because he could have made many deals that for some reason he never does. Well, first of all, let's talk about this energy ceasefire. Doesn't look like it's really in place, at least so far, Jillian. And Russia keeps hitting Ukraine's, the last couple of days, hitting Ukraine energy facilities.

8:59Yeah, that's absolutely right. I mean, literally just after Trump made this announcement and warned both parties not to ignore it, Russia turns around and hits energy infrastructure in Kiev and in Kharkiv. And I think this is completely par for the course with Putin. he has been offered an energy ceasefire many, many times, and he has declined it. And the other noteworthy point is that overnight, Ukraine actually refrained from striking, which is also in keeping with the Ukrainian position. They say that Russia is hitting our energy grid. It's trying to freeze out our civilians in advance of a tough winter.

9:39They have been willing to have a ceasefire, and it is always Putin saying no to this. I think it's further evidence that this U.S. show of appeasement, Putin is not taking that as an incentive to end the war. It's not a factor in how he is handling this war beyond reassuring him that he can continue to wage it. But I think it's really unfortunate that in this case, all of the pressure is being put on Ukraine to make peace. Because if you look at what Vladimir Putin is demanding, it's significant territorial concessions, things that he hasn't been able to win on the battlefield that he wants given away.

10:15And that's not even for peace. That's for peace negotiations to begin. That's not been the Ukrainian position. Ukraine has been willing to offer significant concessions. Somehow, all of the pressure is one sided. And, you know, when I go to Ukraine, I hear a lot of pessimism about diplomacy, because they all say, you know, if the pressure is going to be put on Ukraine, but not on Russia, Russia deduces from that that it can win this war. Well, let's just tell you, I mean, in theory, if there were really an energy ceasefire, that could help Ukraine in this winter. I mean, they don't have that many refineries, for example, or refineries.

10:55They also have a limited number of energy, electricity and other energy production plants. And when those go down in a cold winter, it means real suffering for the Ukrainian people. So this would be a benefit to Ukraine. It would also be a benefit to Russia because some of Russian oil facilities are now under threat from long-range Ukrainian weapons. But if Russia isn't playing, what's the point? Exactly right. In theory, it's a wonderful idea. And that's why President Trump keeps coming back to this sort of thing. The theory never seems to get farther than Vladimir Putin's decision the next day.

11:36And I think in fairness to President Trump, he is trying to manage a large number of different things here. Right. The Iran war certainly is on his mind to be able to continue that U.S. strategy, which is a slow strategy now, squeezing Iran via blockade to be able to do so. He thinks he needs market relief on these prices, oil prices and diesel prices. And that's why he explains, oh, there's a gusher here. It's coming in. It's going to be a huge increase in this. He's trying to talk to markets. That's right. But he needs it now, right? He needs it in these three weeks. And I think that is clashing with the real strategic imperatives, both in Ukraine, Russia, and also Iran and the Gulf.

12:25And Jillian, I mean, the Europeans reacted to this very critically. Boris Johnson, former British Prime Minister, Kimi Baden-Württembert, the conservative Tory leader in UK, both saying this is a huge mistake to buy the diesel. Other folks in Europe, very critical. Vladimir Zelensky as well, saying, you know, we'll cooperate if they do, if the Russians do, but there's no evidence they do. So where is this going to go? Does this kind of, is this turnout, do you think, to be a lot more flash and dash than reality? Well, I don't think the ceasefire is going to hold. I think Russia is already demonstrating that.

13:06From the European point of view, I think that Trump should listen because Vladimir Putin has a long, long history of using energy as a stick and a carrot to achieve geopolitical goals. And Europe's been on the receiving end of this. This is one area where Europe really knows what it's talking about. And I think part of the risk for President Trump is if you were betting on a Russian diesel deal, that's not reliable. And it's giving potentially the Russian president leverage over you. And that's not a good idea. And I think we also have to look at the lack of Russian concessions on this on this point.

13:41I mean, Putin is basically getting something for nothing here. And that's never the hallmark of a winning deal. Well, and this is from a United States that has been criticizing Europe for buying Russian oil and gas and saying you need to have tougher sanctions on the purchase of Russian oil and gas, criticizing China for purchases of Russian oil, criticizing India for purchases of Russian oil. And now suddenly the U.S. is buying Russian diesel so much for the power of that diplomacy. I think it's going to go by the wayside. They'll just point to this deal and say, these countries and say, why should we go ahead with this and pay any cost?

14:26We are going to take another break. When we come back, we'll turn to the Middle East and talk about the Houthi attacks on Saudi Arabia's capital and what the Saudis and the United States can do about it. Why can't we get AI to production? Our competitors are all ready. How do we keep data secure? When do we actually see ROI? All this talk about AI, but talk doesn't transform businesses. AWS AI cuts through the noise, making AI easier to securely deploy and scale. With ready-to-use agents and the broadest set of AI tools and services, you can build, buy, or partner your way. Stop overthinking. Start building.

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15:14From the opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. I'm Paul Gigo here on Potomac Watch with Elliot Kaufman and Jillian Melcher. All right, let's turn to the Middle East and the attack by the Houthis this weekend on Saudi Arabia's capital of Riyadh. A bad attack, Elliot. More than 300 injured, 13 killed. Air traffic shut down in the kingdom. Follow-up attacks killed one person at least. And we know that the Houthis are a proxy militia based in Yemen for the Iranians. They get armed by the Iranians. They're financed by the Iranians. And they've been conducting off and on wars with Saudi Arabia for some time.

16:01But what's the catalyst for this new assault on the Saudi capital, which is one of the worst ever? Where to start on this? You could say it was a Houthi offensive, which then provoked a Saudi-backed Yemeni government offensive, which then provoked these strikes. So point the finger where you want. But the Houthis are firing on a civilian target international airport, killing Islamic pilgrims in Saudi Arabia. The Saudis have now released quite a disturbing video of the airport terminal. What happened? I watched that and it's really, really something. It's like you're sitting at LaGuardia and suddenly a missile or drone just boom and firebomb throughout the airport.

16:46And this is a truly barbaric group. It always has been. They don't hide it. But they have gained in Yemen over time, used those gains, of course, to threaten the entire region. They were firing on Israel a few years ago. They were firing on international shipping going through the Bab al-Mandab Strait. They have reasserted themselves in that Red Sea area and now threatening Saudi Arabia and its economic activity, really, really threatening the country's not just short term safety, but its entire long term economic strategic vision. So what are the options here for Muhammad bin Salman, the crown prince of Saudi Arabia, who runs the country?

17:36He has he can he started that war several years ago with a campaign against the Houthis. It didn't go well for them for Saudi Arabia. But what what is he what options does he have now? He can't obviously let his cities be under siege here. He's got to have some kind of plan to fight back. No. Yes. Well, I'd say the previous war, maybe it could have gone well. It didn't in the end because President Biden cut off American support. And President Biden did so right at the start of his term, February 2021, because it was a very ugly war, massive civilian casualties. The Saudis had been pushing back the Houthis in Yemen.

18:24And then the U.S. cut off all arms, intelligence support, logistical support, and said, come to a deal. When you look at what the Saudi options are now, they look similar. Are you going to wage this war, which inevitably is going to be ugly, inevitably is going to be disruptive and costly for the Saudis? Or are you going to try to reach yet another diplomatic agreement? with the Houthis, which ended up looking like paying them off, really, paying the salaries of Yemeni civil servants in Houthi-run areas. What this did was it gave the Iranian-backed terror group a reprieve, allowed them to rearm and then reassert themselves even more strongly to the point where they're now not just a Saudi problem, they're a regional problem and an international problem.

19:14Any doubt in your mind that this Houthi assault here is essentially done at the encouragement of the Iranian regime? I think absolutely at the encouragement. It would be hard to see a major escalation like this without Iranian sign-off. And certainly Iran arms and funds the Houthis to do things like this when Iran needs it. Because we should recall, Iran does need it. It hasn't had an answer really in the Strait of Hormuz itself. Despite getting some hits here and there, oil is making its way out. And so what can it do? It can escalate elsewhere. Jillian, what do you see here as the options for the president of the United States?

20:00Trump said on the weekend that he is considering reentering the conflict with the Houthis that It would involve bombing, I would assume. But that is not a cost-free option for us. And the reports are, and I think these are credible, that President Trump's reluctant to open up another front in this war with Iran. As Elliott says, he's got the Strait of Hormuz to police with the American Navy. doesn't want to have to fight a second front. On the other hand, you really can't let Saudi Arabia out to dry here, can you? Because they're under siege. And if the Saudis look to be essentially abandoned by the U.S.

20:54in this, the whole world will get a bad message about American credibility and endurance. There's a lot of U.S. credibility at stake here. complicating this is that you have the elections coming up so close and Trump is a bit risk averse headed into them. But, you know, I think this is really making a point about the way that warfare is changing. I mean, we've seen missile strikes, but another factor with both the Houthi strikes and the Iranian strikes is the use of cheap drones. And that asymmetric threat is something that's very difficult for our allies to deal with. It's been something that we ourselves have struggled to deal with.

21:28But I think this is one place that that's going to be figured out. And the challenge for the Trump administration, I think, freedom of navigation, of the ability to get oil in and out, but also just the security and safety of critical infrastructure like airports, civilian infrastructure in the Middle East. Those are tough things to protect. And there's a cost to not doing more as well. I think that's something that may not be seen to the same extent before the election, which is Trump's short-term consideration. But looking at the long term, I mean, he's got to do something because there's there is that cost to U.S.

22:02credibility. But there's also if U.S. allies can't count on the U.S., that's going to change geopolitics going forward in a way that's not great for the United States. Well, and the president said also on the weekend, well, I might back to bombing Iran after the election. So, OK, folks, you got a three week reprieve here. I mean, it's not how you should conduct warfare. On the other hand, I mean, what options does the United States have in your view? I do think from my own point of view that there is a possibility here of a kind of coalition that the U.S. could help put together. The Saudis, Israel, Israel.

22:44You may say, how can they work with the Saudis? Well, they have mutual interests here. The Houthis are a threat to them too. And then UAE, United Arab Emirates. You could put together a regional coalition and then the U.S. could provide intelligence. It could provide some targeting. It can provide some offensive weapons, if need be, to help dislodge the Houthis. What do you think about that idea? I think it is a good one in that U.S. Central Command is already at work on some of it, bringing Israel in there. The Saudis already reportedly requested Israeli intelligence assistance, despite not having formal relations with Israel.

23:31They know how to work with each other when they need to. The Saudis had previously gotten into a spat with the UAE over precisely Yemen and urged UAE-backed forces to leave Yemen. They may need them back in now because they have an even greater problem. Now, you might say where the U.S. should really help the Saudis, a safe way to help would be on the defensive end, shooting down drones and missiles, except the U.S., that's where its shortages are now in these defensive interceptors. And as our colleague Kate O'Dell would remind us, you don't win wars like this on defense. Just by swatting down drones and playing whack-a-mole, you really have to go on offense or else it is a losing fight.

24:24And there, the U.S. can do things that only it can do. Intelligence support, real time to help guide and actually accelerate this Saudi-Yemeni ground offensive, and also taking out the surface-to-air missiles, which would then allow Saudi aircraft to do far more and not using the kind of expensive standoff munitions, but the type of standard munitions, which the U.S. has not. run low on. The Abraham Accords kind of sit in the background here. That's the agreement from Donald Trump's first term where Israel struck agreements with U.S. as mediator with a variety of Arab nations. It's been expanded since that first term, but the Saudis have not notably joined.

25:15They've been reluctant. They were, by all accounts, going to join before October 7th, 2023, which is probably one of the catalysts for Iran giving the go-ahead to Hamas to try to blow that up with their attack in Gaza. But Israel still wants that kind of a deal. The US, President Trump would love that kind of a deal. Is that the price that Mohammed bin Salman should be willing to pay to get that kind of a coalition of defense here? He may need to, but Prime Minister Netanyahu of Israel has been notably open, assertive in offering that sort of assistance. And he doesn't say so, but you do wonder what he wants as part of that deal.

26:01I think it could be a real opportunity. You know, Saudi Arabia had turned away from the Abraham Accords, even making this Mecca defense pact with Pakistan and Turkey, looking at it as a kind of alternative defense alliance. But right Right now, where is that alliance? It certainly hasn't rallied quickly enough. And the Saudis are back looking at the United States and, yes, Israel for support. The Mecca Accord, it's pathetic. It's where the Turks, they have a good military. They're going to take on the Houthis. Apparently not. The Pakistanis, they have a pretty big military. Are they helping? No.

26:42I mean, I guess maybe they've flown in a few troops to be able to provide some, essentially some advisors. But that's it, because neither one of those nations wants to really get into a fight with the Houthis in Iran. Am I wrong about that? No, that's right. And I would point to the Saudis themselves, who, you know, spent more than$80 billion on defense last year, which is more than Israel and more than Iran. I think they have to lead, but they're going to need support in this. that support can help them lead, in fact, and take on this fight if they're not worried that the U.S. is going to pull the rug out from under them right when they get going and incur serious costs.

27:25All right. We'll see how this evolves. But there are some difficult choices to be made, both in Saudi Arabia and in Washington. Thank you, Jillian Melcher. Thank you, Elliot Kaufman. Thank you all for listening. We are here every day on Potomac Watch. Hope to have you here with us tomorrow. Why can't we get AI to production? Our competitors are all ready. How do we keep data secure? AWS AI cuts through the noise. With ready-to-use agents and the broadest set of AI tools, stop overthinking, start building. AWS AI is how.