IRSHAD SALIM, (Nov 18, 2018): Here’s why the Saudi Kingdom is miffed at and don’t trust President Trump any more–they are very angry post-sanctions scenario.
Oil prices are now down over 20 percent from recent highs. “If you look at oil prices they’ve come down very substantially over the last couple of months,” President Trump said in a news conference last week. “That’s because of me.”
The President is partially correct about that, but not for the reasons he thinks. He attributes it to his hard line on OPEC. But what has actually happened is that crude oil inventories in the U.S. have risen for seven straight weeks.
Nonetheless, wittingly, or unwittingly, the US President has upset its key middle eastern ally, and bulwark against growing Iran footprint in the region. Meanwhile, China and Russia have their own reasons to be looking at the changing dynamics potentially going in their favor.
Did Trump overplay his hand? Analysts are not sure, but the Kingdom seems to be for valid reasons.
When Trump asked Saudi Arabia this summer to raise oil production to compensate for lower crude exports from Iran, Riyadh swiftly told Washington it would do so.
But Saudi Arabia did not receive advance warning when Trump made a U-turn by offering generous waivers that are keeping more Iranian crude in the market instead of driving exports from Riyadh’s arch-rival down to zero, OPEC and industry sources say.
Angered by the U.S. move that has raised worries about oversupply, Saudi Arabia is now considering cutting output with OPEC and its allies by about 1.4 million barrels per day, or 1.5%, of global supply, sources told Reuters last week.
“The Saudis are very angry at Trump. They don’t trust him anymore and feel very strongly about a cut. They had no heads-up about the waivers,” said one senior source briefed on Saudi energy policies.
Washington has said the waivers are a temporary concession to allies that imported Iranian crude and might have struggled to find other supplies quickly when U.S. sanctions were imposed on November 4.
U.S. Secretary of State Mike Pompeo said on November 5 that cutting Iranian exports “to zero immediately” would have shocked the market. “I don’t want to lift oil prices,” he said.
A U.S. source with knowledge of the matter said: “The Saudis were going to be angry either way with the waivers – prebriefed or even after the announcement.”
A U.S. State Department official said: “We don’t discuss diplomatic communications.”
The U.S. shift toward offering waivers adds to tension between the United States and Saudi Arabia as Washington pushes for Riyadh to shed full light on the murder of Saudi journalist Jamal Khashoggi in the Saudi Consulate in Turkey.
“The Saudis feel they were completely snookered by Trump,” said a second source briefed on Saudi oil thinking. “They did everything to raise supplies assuming Washington would push for very harsh Iranian sanctions. And they didn’t get any heads up from the U.S. that Iran will get softer sanctions.”
The Saudi Energy Ministry did not respond to a Reuters request for comment.
Since the summer, Riyadh has led the Organization of the Petroleum Exporting Countries, Russia and other producers to hike supplies by over 1 million bpd to keep a lid on prices as U.S. sanctions were imposed.
Brent oil had surged above $86 a barrel in October on tight supply worries, but prices have since slid to $66 on concerns about oversupply–and may slide to $60 by December according to some analysts.
Trump had wanted lower oil prices before the U.S. midterm elections earlier this month. Washington gave waivers in November to eight buyers to purchase Iranian oil for 180 days. This was more waivers than were initially expected.
Saudi Crown Prince Mohammed bin Salman, a key Trump administration ally, wants prices at $80 or more for his economic reforms, sources familiar with Saudi thinking told Reuters.
(The writer is a business & construction consultant, analyst, and Editor-in-Chief of PKonweb, DesPardes and BE2C2 Report and presently based in Islamabad)
(Based on Reuters, OilPrice and Financial Times reports)