Saudi Arabia bet that it could withstand the United States as it pushed for oil cuts in the OPEC + meeting, as it would mean that President Trump would not end in retribution despite the heavy handshake of his twitter feed before the Vienna summit. This week the bite seems to have paid.
Saudi Arabia's decision to push for oil production cuts was definitely a good idea. The extreme budget pressures against Riyadh from low oil prices concern far more than any legal or political action from the US Congress or the White House. And in the absence of an agreement in Vienna, oil prices could have fallen further.
"Saudi Arabia has today had a" Saudi first policy "," Helima Croft, global leader in commodity strategy at RBC Capital Markets, said shortly after OPEC + announced its production cutbacks on Friday. She told CNBC that such a move threatened to regret the US president. "I think everyone in OPEC is waiting to see what President Trump does next time. Should he be quiet after this deal, or should he go to social media and criticize OPEC?" Croft said.
Riyadh weighed particular American interests more than any other OPEC meeting in the latest memory. The murder of Saudi journalist Jamal Khashoggi has burned a lot of bridges in Washington, and the White House is one of the few places where Saudi Arabia can find friends.
However, it appears that the cuts in oil production did not cause President Trump enough to act against Crown Prince Mohammed bin Salman. On Tuesday he traveled to the Crown Prince's defense. "He is leader of Saudi Arabia. They have been a very good alliance," said Trump in an interview with Reuters. He once again said that MbS "violently denies" having ordered the killing of Khashoggi despite the CIA conclusion on the contrary. Related: The dangers of China's growing oil needs
By last month, the US Senate voted to abolish US support for Saudi Arabia's war in Yemen. The bilateral consensus that condemns the killing of Khashoggi, and the role played by MbS in it, has only grown since then. "You must be deliberately blind not to come to the conclusion that this was orchestrated and organized by people under the leadership of MbS," said Sen. Lindsey Graham last week.
Now, the US Senate is considering another measure, a decision that condemns the crown prince for the murder. The decision would not have any practical effect, but it would force Trump to either sign it or veto it.
Trumps support for MbS while it is fixed can not be bottomless as opposed to mounting pressure. "Yes, I'm much more open to Yemen because I honestly talk about seeing what's happening in Yemen," says Trump, according to Reuters. "But it takes two for tango. I want to see that Iran is also pulling out of Yemen. Because – and I think they want."
Trump can still interfere with another big piece of legislation that has gathered momentum in Congress. No oil producing and exporting cartels or the NOPEC Act would allow the US government to sue OPEC members for infringements of antitrust activities. Legislation has fled around Washington for years, but has often failed to obtain sufficient support. Earlier presidents of both parties have also opposed the different versions of a "NOPEC" bill of fear of harming their relationship with the Saudi Arabian monarchy.
However, the Khashoggi murder has fueled the NOPEC bill a lot, and the congress can even try to pick it up before the end of the year. "There's something hurry to look at NOPEC, but there's nothing safe yet," an American housekeeper involved in negotiations told S & P Global Platts on December 7th. One factor that works for the bill's advocates is that legislation at this time is not divided along partisan lines. Related: 2019: A crucial year for OPEC
This is where Trump could be crucial. He has lashed out at OPEC on twitter several times this year, blaming them for high oil prices. He is obviously no fan of the cartel. Nevertheless, he has gone out of his way to defend MbS over the Khashoggi assassination. It is unclear how he would react if Congress succeeded in moving NOPEC legislation.
The only thing that Saudi is on their way is that the production cuts from OPEC + have so far failed to raise oil prices significantly. As a result, Trump may not be all sour.
Meanwhile, the Saudi economy is continuing to soften cash from low oil prices. FT reports that many of MbS's strongly hyped economic transformation initiatives are floundering and international investors stay away.
Everything seems to be wrong for MbS right now. He is facing international controls, oil prices have not rallied, even as Saudi Arabia is preparing to restrict production, and Washington can nevertheless change harmful legislation.
By Nick Cunningham from Oilprice.com
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