From the WSJ.
President Trump is playing a tense poker game with Saudi Crown Prince Mohammed bin Salman. The stakes are America’s oil industry and the U.S.-Saudi alliance.
The 34-year-old prince and the president have been fast friends since Mr. Trump chose Saudi Arabia for his first foreign trip and received a lavish welcome. The president stood by the prince when he severed relations with Qatar, and again when he was accused of approving the murder of Jamal Khashoggi. But now the prince is threatening America’s oil industry, U.S. national security and Mr. Trump’s re-election prospects.
In March the crown prince flooded the market with oil to intimidate Russia into curbing its own oil production and shore up prices. His decision coincided with the Covid-19 crisis, which tipped economies into recession, sending oil prices plummeting. Mr. Trump quickly engaged, persuading Saudi Arabia, Russia and other oil producers in early April to cut production. The cuts proved too little, too late, as global consumption fell further.
Today the stakes are even higher for both the president and the prince. The U.S. position as the world’s largest oil producer is eroding, and with it U.S. energy self-sufficiency, essential for security. With oil prices around $30 a barrel, Saudi Arabia faces its worst economic crisis in decades—and worse, the possible loss of its American protector.
Yet the crisis offers an opportunity to work together to strengthen both oil prices and U.S.-Saudi relations. That would require quick action by the crown prince and wise cooperation by Mr. Trump before the June 10 summit of oil producers. The two leaders have plenty of incentive to work together. If they can stop raising each other, end the poker game, and agree to divide the pot, they can both come out ahead by stabilizing oil prices. If they persist in their high-risk game, they’ll both lose.
Mr. Trump played a powerful card last week when his administration announced it would remove Patriot missiles sent last fall to protect Saudi oil facilities after a drone attack by Iran. Within a day, the Crown Prince quietly pledged to cut Saudi production further June 1—but not yet enough to rebalance supply and demand in a decimated global economy.
The U.S. oil boom is a crowning achievement of the Trump presidency. Last year U.S. net petroleum imports averaged only 3% of consumption, the lowest since 1954. In February the industry hit a production record. But oil analysts project bankruptcies will reduce U.S. production around 20% by December. The U.S. oil shale industry needs at least $40 oil to maintain production.
For the Saudis, the stakes are even higher. The crown prince confronts a huge fiscal deficit at a time of rising public expectations. He needs $80-a-barrel oil to fund government spending levels. His Vision 2030 plan to wean the Saudi economy off oil dependence is grinding to a halt. His government has warned of “painful” austerity measures and announced cuts in cost-of-living subsidies to government workers and a tripling of Saudi Arabia’s unpopular value-added tax to 15%. And the kingdom depends on U.S. protection.
So far Mr. Trump is playing a skillful game. Removing Patriot missiles doesn’t mean the Iranian threat has diminished; only political support for Saudi Arabia among oil-state Republican senators. “If you want to behave like our enemy, we will treat you like our enemy,” Texas’ Ted Cruz has warned Riyadh.
So, why should the Saudis fold on their determination to maintain their share of dwindling world oil sales? For three reasons. The market’s large supply overhang will force them to cut because there’s no place to sell. Dwindling U.S. support can only embolden Iran. And political problems for Mr. Trump could lead to a victory of the Democrats, eager to punish Saudi human-rights abuses and improve relations with Tehran.
For Mohammed bin Salman, facing an Iranian threat and a budget chasm, there are no bright solutions. Still, the prince and the president are better off in sync than at loggerheads.
Ms. House, a former publisher of The Wall Street Journal, is author of “On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future.”
President Trump is playing a tense poker game with Saudi Crown Prince Mohammed bin Salman. The stakes are America’s oil industry and the U.S.-Saudi alliance.
The 34-year-old prince and the president have been fast friends since Mr. Trump chose Saudi Arabia for his first foreign trip and received a lavish welcome. The president stood by the prince when he severed relations with Qatar, and again when he was accused of approving the murder of Jamal Khashoggi. But now the prince is threatening America’s oil industry, U.S. national security and Mr. Trump’s re-election prospects.
In March the crown prince flooded the market with oil to intimidate Russia into curbing its own oil production and shore up prices. His decision coincided with the Covid-19 crisis, which tipped economies into recession, sending oil prices plummeting. Mr. Trump quickly engaged, persuading Saudi Arabia, Russia and other oil producers in early April to cut production. The cuts proved too little, too late, as global consumption fell further.
Today the stakes are even higher for both the president and the prince. The U.S. position as the world’s largest oil producer is eroding, and with it U.S. energy self-sufficiency, essential for security. With oil prices around $30 a barrel, Saudi Arabia faces its worst economic crisis in decades—and worse, the possible loss of its American protector.
Yet the crisis offers an opportunity to work together to strengthen both oil prices and U.S.-Saudi relations. That would require quick action by the crown prince and wise cooperation by Mr. Trump before the June 10 summit of oil producers. The two leaders have plenty of incentive to work together. If they can stop raising each other, end the poker game, and agree to divide the pot, they can both come out ahead by stabilizing oil prices. If they persist in their high-risk game, they’ll both lose.
Mr. Trump played a powerful card last week when his administration announced it would remove Patriot missiles sent last fall to protect Saudi oil facilities after a drone attack by Iran. Within a day, the Crown Prince quietly pledged to cut Saudi production further June 1—but not yet enough to rebalance supply and demand in a decimated global economy.
The U.S. oil boom is a crowning achievement of the Trump presidency. Last year U.S. net petroleum imports averaged only 3% of consumption, the lowest since 1954. In February the industry hit a production record. But oil analysts project bankruptcies will reduce U.S. production around 20% by December. The U.S. oil shale industry needs at least $40 oil to maintain production.
For the Saudis, the stakes are even higher. The crown prince confronts a huge fiscal deficit at a time of rising public expectations. He needs $80-a-barrel oil to fund government spending levels. His Vision 2030 plan to wean the Saudi economy off oil dependence is grinding to a halt. His government has warned of “painful” austerity measures and announced cuts in cost-of-living subsidies to government workers and a tripling of Saudi Arabia’s unpopular value-added tax to 15%. And the kingdom depends on U.S. protection.
So far Mr. Trump is playing a skillful game. Removing Patriot missiles doesn’t mean the Iranian threat has diminished; only political support for Saudi Arabia among oil-state Republican senators. “If you want to behave like our enemy, we will treat you like our enemy,” Texas’ Ted Cruz has warned Riyadh.
So, why should the Saudis fold on their determination to maintain their share of dwindling world oil sales? For three reasons. The market’s large supply overhang will force them to cut because there’s no place to sell. Dwindling U.S. support can only embolden Iran. And political problems for Mr. Trump could lead to a victory of the Democrats, eager to punish Saudi human-rights abuses and improve relations with Tehran.
For Mohammed bin Salman, facing an Iranian threat and a budget chasm, there are no bright solutions. Still, the prince and the president are better off in sync than at loggerheads.
Ms. House, a former publisher of The Wall Street Journal, is author of “On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future.”
