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MEOG Commentary MEOG
To the kingdom’s delight, the Trump administration unilaterally withdrew from the Iran-nuclear deal in 2018 and went on to impose relentless rounds of economic sanctions on Tehran.
Trump has vigorously supported weapons sales to Riyadh despite its abysmal record on human rights, but politicians in Congress have not been nearly as willing to ignore troubling behaviour by Riyadh.
The disastrous military campaign in Yemen and the profound humanitarian crisis it has caused have prompted efforts in Congress to block weapons sales to Riyadh. US politicians on both sides of the aisle were also horrified by the murder of Saudi journalist and US resident Jamal Khashoggi.
But the existential threat to the US oil and gas sector - and the more than 150,000 Americans directly employed by it - has prompted a back- lash against Saudi Arabia arguably not seen since the 1970s.
“The United States-Saudi Arabia relation- ship was in trouble before the coronavirus and oil double-crisis,” said Bruce Riedel, a senior fellowanddirectoroftheBrookingsIntelligence Project.
Price routs and rhetoric
Oil prices started to retreat in January and Feb- ruary as COvID-19 marched across the globe, decimating demand. But they fell off a cliff in March after Saudi Arabia initiated an oil price war in retaliation for Russia’s refusal to back Riyadh’s calls for deep output cuts.
The resulting market carnage hit US shale oil producers, especially firms that took on heavy debts to drill new wells when prices were higher. With a strategically crucial industry on the ropes and tens of thousands of jobs on the line, legisla- tors from states whose fortunes depend heavily on a thriving domestic oil patch are upping the rhetoric.
As Congressional pressure piled on, Trump personally appealed to MbS and Russian Presi- dent vladimir Putin to call a truce and stabilise oil markets.
During a phone call on April 2, Trump told MbS he could not stop US politicians from passing The Strained Partnership Act if OPEC did not curb production, Reuters News Agency reported last Thursday. Trump’s diplomatic efforts culminated in an April 12 agreement by
OPEC and its allies to scale back production by a record 9.7mn bpd.
But coronavirus has crushed demand by at least 30mn bpd. So the historic production cut deal has failed to arrest, let alone reverse, the oil price crash.
Indeed the price rout has since got worse as crude supplies continue to overwhelm demand. Analysts estimate the storage hub in Cushing, Oklahoma - where US benchmark West Texas Intermediate (WTI) crude is delivered - will reach capacity sometime next month.
That prospect triggered yet another historic milestone in oil markets, when the price of WTI for May delivery plunged to negative $40 a bar- rel as investors paid to have oil taken off their hands rather than get stuck with crude they have nowhere to stash.
That same day, Trump said he would look into a proposal by Senator Cramer of Oklahoma calling on the White House to block Saudi Ara- bian oil shipments to the US. “We cannot allow Saudi Arabia to flood the market, especially given our storage capacity [is] dwindling. Right now, the highest number of Saudi oil tankers in yearsisonitswaytoourshores,”Cramersaid.
But some analysts say such calls will not fix the underlying problem, nor are they likely to find real traction with the White House.
There are possible lifelines Trump could throw to struggling US oil firms that do not involve punitive measures against Riyadh.
Given the unprecedented and innovative measures that have been deployed to shore up businesses against the ravages of the coronavi- rus, some analysts say legislation like the No Oil Producing and Exporting Cartels Act (NOPEC), aimed at OPEC restrictions on output as the driving force in pushing oil prices to above $60 per barrel, is unlikely to come out of hibernation.
“While the US has a limited hand to save US Shale, it recognises that a bill like NOPEC will likely do more harm than good,” said Reed Blakemore, deputy director of the Atlantic Council Global Energy Center.
“The president has remained committed to having a productive and pragmatic relationship with Saudi Arabia, which is an important ele- ment of this situation.”
But with an election less than seven months away and an economy that is already shrinking dramatically, that commitment could be sorely tested.
Week 18 06•May•2020 w w w . N E W S B A S E . c o m P5
