US-Saudi ties strained as Mohammed bin Salman reverses on oil

Published on : 2020-04-16

FT - The historic Opec+ deal sealed at the weekend to cut global oil supply by almost 10 per cent, and try to put a floor under a market with crude prices in freefall, may or may not work. More certain is that the oil price war that Saudi Arabia launched last month, just as the coronavirus pandemic started ravaging the global economy, has dented the kingdom’s reputation as a responsible actor in the international oil trade — and the suitability of Mohammed bin Salman to lead it.

In early March, the headstrong crown prince and de facto Saudi ruler slashed oil prices and turned on the taps to flood the market, after Russia declined to continue a three-year-old production restraint deal to shore up prices. Moscow had concluded this policy handed market share to higher cost US shale oil producers. 

Riyadh’s rash move not only added to oil oversupply at a time when fuel consumption was plummeting. It helped trigger the biggest stock market sell-offs since the financial crisis of 2008 and threatened the collapse of America’s highly leveraged oil industry — in the year US President Donald Trump, the Saudi crown prince’s only unconditional supporter on the world stage, is seeking re-election.

One well-placed Saudi says this was “childish, playground behaviour”, but that the stakes were so high that Saudi Arabia was forced to capitulate.

For some hubristic reason, possibly because Prince Mohammed often deals with what must look to him like a fellow princeling in the White House, Mr Trump’s son-in-law Jared Kushner, Riyadh seems to have thought Washington would blame Moscow for the price war.

Instead, the US president, finding himself in the odd position of demanding that the Saudi-led Opec cartel should behave like one, threatened to slap tariffs on Saudi and Russian oil imports.

Worse still, Republicans in both the House of Representatives and the Senate, who had acted as a shield for Saudi Arabia against congressional attempts to punish it for its ruinous war in Yemen or brutality towards dissidents, threatened reprisals.

Led by lawmakers from oil states such as Texas and North Dakota, these erstwhile Saudi allies called for the withdrawal of US troops and Patriot air-defence batteries from the kingdom. This is no small threat. When what was almost certainly an Iranian drone and missile attack last September devastated a neuralgic hub of Saudi Aramco, the state oil company, the Saudis were helpless, despite huge outlays on US weapons systems.

Faced with this shocking vulnerability, the crown prince has moderated his bellicose tone towards Iran. Last week, moreover, Riyadh agreed a ceasefire in the Yemen ;war he launched in 2015, a costly failure against rag-tag rebels backed by Tehran that has led to famine and a cholera epidemic. But it did not deter him from gambling his political capital with Mr Trump by flooding a saturated oil market with d iscounted crude.

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