Predictably, everyone (including the White House communications team) is being forced to scramble around and clarify a bombastic claim tweeted out by Donald Trump. So you know, “just another weekend in paradise.”
On Saturday morning, Trump said he had convinced King Salman of Saudi Arabia to increase oil production by 2 million b/d, a remarkable claim coming as it does on the heels of an OPEC meeting that tipped, at most, a 1 million b/d increase for OPEC+ as a group.
That decision to increase production in the back half of the year was itself the product of Trump’s badgering. America’s decision to pull out of the Iran nuclear deal helped embed still more geopolitical risk premium in the price of crude at a time when the presence of John Bolton (and his infamous mustache) in Trump’s inner circle was already causing consternation about how the U.S. would approach Mideast policy.
Of course the higher crude prices rise, the greater the chances that higher prices at the pump end up offsetting the gains that would accrue to American consumers from Trump’s tax cuts. So, Trump felt like he needed to intervene by bullying OPEC into a production increase.
We’ve been over this countless times in these pages and there’s a brief recap in “Trump Wakes Up, Says ‘Maybe’ Saudi Arabia Will Upend Oil Market With 2 Million Barrel Production Increase“, but suffice to say the Saturday tweet was highly unusual to the extent it represented the President of the United States using social media to announce Saudi Arabia’s purported decision to (basically) throw the OPEC deal out the window in favor of what sounds like a unilateral production increase in excess of what was agreed to in Vienna.
And so, cue Sarah Huckabee Sanders, who on Saturday evening “clarified” things as follows:
President Trump and Saudi’s King Salman reaffirmed their dedication to a healthy and stable global energy market for the benefit of all nations. [They agreed] that balancing the global oil market is essential to ensure access to reliable and affordable energy to people everywhere. King Salman affirmed that Saudi Arabia maintains a 2 million b/d spare capacity, which it will prudently use if and when necessary to ensure market balance and stability, and in coordination with its producer partners, to respond to any eventuality.
That’s obviously something different than what Trump seemed to be suggesting on Saturday morning and use of the word “prudent” there means this will be at Saudi Arabia’s discretion, not Trump’s.
As Reuters notes, “a statement reported by Saudi media did not mention any intention by Saudi Arabia to raise production by 2 million b/d.”
Of course Trump is simply trying to offset the recent spike in oil prices catalyzed by the administration’s demands that allies cut Iranian oil imports to zero by November 4. That news hit on Tuesday, just hours after reports indicated that Saudi Arabia was planning for record production in July.
As Bloomberg wrote at the time, “the initial Brent-crude shock of the Saudi production increase number [wore] off quickly amid reports that the U.S. will try to get allies off of Iranian crude this year.” In other words, the Iran news is what markets care about right now, and Trump is attempting to mitigate that by forcing the Saudis into a kind of “shock and awe” boost.
Fast forward to Sunday and Iran Oil Minister Bijan Namdar Zanganeh is having none of it.
You’ll recall that Zanganeh was a tough sell at the OPEC meeting last month. At one point, he walked out of a meeting and it took a heart-to-heart with Saudi Oil Minister Khalid Al-Falih to finally convince him not to undermine the entire effort. That last minute stick save came after a solid week of contentious rhetoric from Zanganeh who echoed the sentiments of Iran’s OPEC representative Hossein Kazempour Ardebili who, prior to the OPEC meeting, said this:
We as Iran, and I hear Iraq and Venezuela, are against any increase in OPEC production. I am confident many other OPEC members feel and act the same. Our OPEC and DOC agreement has a date until end of the current year. We call upon our brothers in OPEC and Russia that we do not need to appease Trump, who sanctions two OPEC founders and also Russia.
Following Trump’s Saturday tweet, Ardebili told Bloomberg that if Riyadh acquiesces to the U.S., it “means he is calling on them to walk out from OPEC.”
“We are 15 countries in an agreement,” he continued, before saying that even if you “set aside that [the Saudis] do not have the capacity, there is no way one country could go 2 million b/d above their production allocation unless they are walking out of OPEC.”
That brings us to Sunday comments from Zanganeh who, in a letter to OPEC President Suhail Al Mazrouei said this:
Any production increases above limits agreed to by OPEC are a breach of output agreement reached last month in Vienna. OPEC decision by no means warrant any action by some of its member countries in pursuit of the call for production increase by U.S., politically motivated against Iran and publicly declared. We should not let others take politicized measures targeting OPEC’s unity and independence.
It’s hard to say who’s bluffing here and some of this rhetoric from the Iranians is starting to sound a bit desperate, which would be at odds with their contention that buyers won’t ultimately give in to Trump’s demands to cut their imports of Iranian crude to zero.
Additionally, it seems like the Saudis are pretty keen on staying on Trump’s good side, which reinforces the geopolitical narrative. Remember, there’s a lot more going on here than the traditional U.S.-Saudi friendship.
Trump’s decision on the Iran nuclear deal all manner of geopolitical implications and it dovetails nicely with Riyadh’s push to curtail Tehran’s regional influence, which has grown over the past several years thanks to Hezbollah’s success in propping up the Assad regime in Syria. Throw in the Quds’ stranglehold on Iraqi politics (and Iran has apparently worked something out with al-Sadr on that front) and the resilience of the Houthis in Yemen, and you’ve got a particularly annoying situation for the Saudis, who were thus more than happy to throw their support behind Trump.
I’ll leave you with this from Pierre Andurand:
I guess the Saudis want to give the confidence to Trump to go very hardcore on Iran… Exports to zero, or an attack… It will be interesting to see what the Saudis can really do and for how long. It seems that Iranian regime change is the priority number 1 for the Saudis.
— Pierre Andurand (@AndurandPierre) June 30, 2018