The Importance of Saudi`s Oil for Trump

The U.S. is much less dependent on oil imports than a decade ago. but President Trump can’t stop prodding and cajoling Saudi Arabia. long the world’s top producer. to keep pumping to maintain low prices.

America. thanks to the shale boom. has surpassed the Saudis as the world’s top oil producer. with output expected to reach new record highs of 12 million barrels per day in 2019. and it could soon become a net oil exporter for the first time in nearly 75 years.

But because European allies and competitors like China continue to rely on production from the Saudi-led oil cartel OPEC. and with the U.S. economy dependent on the global economy. American consumers are still exposed to oil price shocks.

 “While OPEC’s influence is reduced thanks to surging U.S. production. the cartel still matters. primarily because of Saudi Arabia’s spare capacity and its ability to help balance supply and demand.“ Dan Eberhart. CEO of the oil services firm Canary and a Trump donor. told the Washington Examiner. “U.S. shale can come online pretty quickly. but it’s not fast enough to make America a swing producer.“

Trump’s obsession with low oil and gas prices helps explain why he is standing by Saudi Arabia after the murder of journalist Jamal Khashoggi.

“Trump has shown that he’s fixated on the price of oil.“ Eberhart said. “He understands that the price of gasoline is the primary way American consumers react to foreign policy. and he believes that if he can keep gasoline prices low. it will benefit his popularity.“

Trump on Wednesday credited Saudi Arabia for bringing down oil prices and encouraged the Kingdom to continue pumping.

“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54. was just $82. Thank you to Saudi Arabia. but let’s go lower!` Trump said in a Twitter post.

Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54. was just $82. Thank you to Saudi Arabia. but let’s go lower!

The tweet came after a White House statement Tuesday asserting the importance of the U.S. relationship with Saudi Arabia despite the Khashoggi killing.

In the Tuesday statement. Trump indicated that Saudi Arabia was critical to oil prices falling for the last six weeks after breaching $85 in October. Critics blasted Trump as engaging in strictly transactional foreign policy without regard to human rights and American traditions.

But Trump administration supporters say the move is reflective of the president’s zero-sum view of the Middle East. where he considers Saudi Arabia crucial to combating Iran. blunting its influence in Syria and Lebanon. and keeping oil prices low. Trump wants to encourage the Saudis to be helpful on these goals.

“I am not surprised he is not linking the Khashoggi murder to broader U.S. relations with Saudi Arabia.“ George David Banks. Trump`s former special assistant on international energy and environment. told the Washington Examiner. “That`s just not his foreign policy. The president has built a lot of political capital and leverage with the Saudis.“

Trump. in the lead-up to the midterm elections. had pressured Saudi Arabia to produce more oil — so gasoline prices did not spike — before his oil sanctions kicked in on Iran earlier this month.

Iran is OPEC’s third-largest producer. providing more than 2 percent of global oil output.

Saudi Arabia and Russia. the top two oil producers outside the U.S.. began boosting output a few months ago. partially in response to Trump.

To be sure. other factors contributed to the oil price drop. The Trump administration granted temporary exemptions to some of Iran’s biggest customers. allowing them to continue importing Iranian oil. which has also helped ease prices. along with prolific output from U.S. shale producers.

Now. the market is in a oversupply situation because of the severe reaction by Russia and the Saudis to cover for Iran losses. which did not materialize as feared.

In addition. analysts have said the oil price fall can be partially attributed to fears of sluggish global economic growth due to Trump`s trade wars.

Combined. these forces have pushed the Saudis and Russia to consider cutting production to increase prices and balance their budgets. A formal decision could come next month when OPEC meets in Vienna.

Trump appears to be trying to influence Saudi Arabia to prevent that outcome.

“The question is: `Are the Saudis going to do more for the U.S. as they would have otherwise?“ Banks said.

But too much emphasis on lower prices could harm another important Trump constituency: The energy industry and states that rely on fossil fuel production.

The energy industry has already protested Trump’s steel and aluminum tariffs. because these raw materials are crucial for oil products such as pipelines.

“The assertion that prices went down recently thanks to Saudi Arabia and that we should keep going lower also shows how little the president understands about what will happen when prices go too low in places like Texas. New Mexico. North Dakota. Alaska. etc..“ Sarah Ladislaw. director of the Energy and National Security Program at the Center for Strategic and International Studies. told the Washington Examiner.

Banks counters that Trump considers low energy prices to be crucial to maintaining a strong broader economy.

“He sees the abundance of U.S. energy as being a key driver of economic performance. because of the importance of affordable energy to competitiveness.“ Banks said.

Critics. however. said Trump’s fears of an oil price spike prove that U.S. foreign policy remains beholden to global energy supply and that the only way to stop that is to transition the world away from oil through efficiency and alternative fuels and transportation.

“The best way to protect consumers from future oil price shocks is to reduce the overall oil use of our economy in the first place.“ argued Jason Bordoff. the founding director of the Center on Global Energy Policy at Columbia University and a former White House energy adviser to President Barack Obama.

 

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