Page 97 - Bloomberg Businessweek-October 29, 2018

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How the U.S. Got Stuck Privately, oil officials and diplomats familiar with the talks say
the meeting went badly, with each side trading barbs.
On Oct. 3, the day after Khashoggi vanished, the 33-year-
In the Neutral Zone old prince said in an interview with Bloomberg News that
“sovereignty issues” prevented a deal. “We think a 50-year-
old issue is almost impossible to fix in a few weeks,” he said.
● One oil-rich region that’s key to Trump’s attempt to “So we’re trying to have an agreement with the Kuwaitis to
contain Iran is caught up in a spat between Kuwait’s ruler continue to produce for the next 5 to 10 years and, at the
and the Crown Prince of Saudi Arabia same time, we work on the sovereignty issues.” To restart the
pumps, however, Kuwait wants a deal first.
The neutral zone, spreading over 5,700 square kilometers—
Jean Paul Getty became the richest man in America, and its an area a bit smaller than Delaware—was created by a 1922
first billionaire, thanks to a barren strip of desert where he treaty between Kuwait and the fledgling Kingdom of Saudi
discovered oil in the 1950s. The land was a “neutral zone” Arabia. In the 1970s the two nations agreed to divide the
straddling Saudi Arabia and Kuwait—a relic of the time when area and incorporate each half into their territory, although
European powers carved implausible ruler-straight borders still sharing—and managing in common—the petroleum
across the Middle East. The fields continue to be a tremendous riches. The region contains two main oil fields: the onshore
resource: They can pump the equivalent of $15 billion of crude Al-Wafra and the offshore Khafji. The latter is now operated
a year at current prices. The famously stingy Getty squeezed oil by a joint venture between the two countries’ state-owned oil
out of the fields as hard as he could. In contrast, the Saudis and companies. It was Al-Wafra where the disagreement began.
the Kuwaitis aren’t pumping a single barrel nowadays because Chevron Corp., the second-largest energy company in
of a century-old sovereignty dispute, pride, and money. the U.S., operates the fields there on behalf of Saudi Arabia.
In other circumstances, the fight over the neutral zone It’s done so since 2000, when it acquired Texaco Inc., which
would be an obscure local dispute of interest to a handful bought the Getty empire in 1984. In 2009, Saudi Arabia
of government officials, foreign diplomats, and petroleum extended the original 60-year-old Getty concession, giving

16 executives. But these aren’t normal times in the oil market— Chevron rights over Al-Wafra until 2039. Kuwait was furious
or in the Middle East, which is caught up in the policies of over the announcement and claims Riyadh never consulted
President Trump, who has an eye on containing Iran, and with it about the extension. The emirate wants the U.S. com-
Saudi Arabia’s Crown Prince Mohammed bin Salman, who also pany to be subject to its laws, according to people familiar
has an eye on Iran but is surrounded by controversy over the with the talks.
murder of journalist Jamal Khashoggi. The relations between Saudi Arabia and Kuwait over the
U.S. sanctions on Iran are set to go back into effect in early neutral zone further soured in 2014 when Riyadh unexpect-
November. With that already sending oil prices to a four- edly shut down the offshore Khafji field, which lay in Saudi
year high, Washington is encouraging its allies to open the Arabia’s sphere of control. The official reason was environ-
taps fully so supplies can lower prices. The 500,000 barrels mental problems, but the timing was convenient for Saudi
a day that the oil fields of the neutral zone could produce— Arabia, which was concerned about a glut in the oil market.
about the same as OPEC member Ecuador—would go a long Kuwait responded a few months later in 2015, forcing the
way to reassure the market that there’s enough additional closure of the onshore Al-Wafra field, which is part of the ter-
crude to meet not only the loss of sanctioned Iranian pro- ritory that went over to the emirate after the partition in the
duction but also that of any future outage. “There is little 1970s. Since then the fields that created Getty’s oil fortune
spare capacity,” says Jason Bordoff, director of the Center on have remained shut. “The impasse between Saudi Arabia and
Global Energy Policy at Columbia University in New York and Kuwait seems to have deepened,” says Amrita Sen, of Energy
a former Obama administration oil official. “And that makes Aspects Ltd., a consulting firm in London.
the market nervous.” The implications for Chevron remain unclear. For the
To get the neutral zone out of neutral, Washington has moment, not a drop of oil is coming out of the neutral zone.
spent the past several months trying to push Saudi Arabia and In a statement, the company said it’s “focused on supporting
Kuwait into a deal to restart the fields, which haven’t produced operational activities to maintain readiness for production
anything since they were shut down after a series of tit-for-tats restart when that time comes.”
in 2014 and 2015. So far, American diplomats have come home Despite pressure from the U.S., a restart is unlikely any-
empty-handed. In the last attempt at a breakthrough, Prince time soon. Expelling Chevron from the neutral zone, as Kuwait
Mohammed traveled to Kuwait at the end of September to may ultimately demand, would cost Riyadh dearly—both in
meet the country’s ruler, Sheikh Sabah Al-Ahmed Al-Sabah. money and pride. Kuwait won’t compensate for it, either.
What was supposed to be a landmark two-day visit was cut Getty once said that “oil is like a wild animal,” adding that
short, with the prince leaving unexpectedly within a few “whoever captures it has it.” In the neutral zone, the Saudis
hours of landing in the neighboring nation—without a deal. and the Kuwaitis are circling their prey. �Javier Blas