Trump playing hardball on oil prices
Over the course of his first 20 months in office, President Donald Trump has diverged from the traditional behavior of his political party in a few areas, but none more so than the foreign policy of trade and economics. While the Republican Party has traditionally feared trade wars, Trump has been the toughest economic negotiator in recent American history.
As president, Trump has confronted close allies such as Canada and the EU, as well as economic competitors such as China. Now he is taking on OPEC. Neither side seems willing to flinch —yet. If this turns into another economic showdown, there may be no winner.
Trump’s general theory on economic conflicts with every other country seems to be: “The US is your biggest customer, your economy cannot survive without us, and so you will negotiate to lower your tariffs.” So far, Trump has been proven right. Both Mexico and Canada have conceded and renegotiated the trade agreement that binds the three countries.
The UK, EU and Japan have indicated that concessions will be made. Even China has shown signs of wavering, though it is still fighting major concessions.
However, the dispute brewing with OPEC is different. Two years ago, OPEC and some of its non-OPEC partners like Russia began cutting production to increase oil prices. The US appreciated this because oil prices had been low for a few years.
In fact, they had been too low for America’s interests — even though consumers liked low gasoline prices, US oil producers did not. However, today the price of oil is almost three times as high as it was at the start of 2016 and Trump is getting concerned.
Now the price of oil is high, almost $85 per barrel for the global benchmark. A major reason it is so high is apprehension about the new sanctions that the US is imposing on Iran beginning in early November. Trump wants lower oil prices, and OPEC is the best way to get that because only Saudi Arabia and Russia are capable of significantly increasing production to lower the price.
Trump has been tweeting regularly since the beginning of the summer that OPEC must lower prices. He has also continuously tried to publicly remind OPEC countries and the world that it is the US that will be enforcing new sanctions against Iran, it is the US that sells weapons to many of the OPEC powers, and it is the US that, “defends many of their members for very little $’s.” Still, oil prices have risen — almost 25 percent since mid-August.
Crown Prince Mohammed bin Salman did not hold back when speaking just a couple days later. When it comes to producing enough oil to keep prices down, he said: “We did our job and more.” He also argued that Saudi Arabia has paid for the weapons it has bought from the US.
Neither side seems eager to budge on this dispute. Trump has already proven to be a tough and successful negotiator as president. Khalid Al-Falih, the Saudi oil minister, is no slouch either. But OPEC does have one great advantage: Whereas Trump has pressured economies around the globe because they rely so heavily on the US market, OPEC does not. Over the past 15 years, the US oil industry has boomed, and it sometimes produces more than Saudi Arabia or Russia. Its success has meant the US has reduced its oil imports. As a result, it has less leverage as a customer over OPEC.
If Trump is serious about pushing for more production and lower prices, he will probably keep pushing Saudi Arabia on other issues. During economic negotiations, Trump has been known to push on every seemingly unrelated issue. It is his best available negotiating tool
. However, Al Falih will know s this is really all about oil.
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