Photo caption: OPEC
In is exceptionally difficult to imagine Saudi Arabia’s Crown Prince Mohammed bin Salman and his United Arab Emirates (UAE) counterpart Sheikh Mohammed bin Zayed al Nahyan disdaining to take an urgent telephone call from President Donald Trump, as they did from President Joe Biden at the height on the energy crisis just after Russia had invaded Ukraine in 2022. However, at its 5 December meeting, selected members of the OPEC+ oil cartel decided to delay the rollback of 2.2 million barrels per day (bpd) of oil production cuts (supposedly being made by Saudi Arabia, the UAE, Kuwait, Kazakhstan, Algeria, Oman, Iraq and Russia) to April from January. Another 3.6 million bpd in output reductions across the OPEC+ group has been extended to the end of 2026 from the end of 2025. By the time of the next full OPEC+ meeting – four full months into the second Presidency of Trump – things may have changed.
The new President has long made his dislike well known — privately and/or publicly — of the OPEC organisation, of several Saudi Arabian policies, and of China’s increased influence over both. In Saudi Arabia’s case, this effectively stems from the breaking of the core agreement made between it and the U.S. on 14 February 1945 between the then-U.S. President, Franklin D. Roosevelt, and the then-Saudi King, Abdulaziz bin Abdul Rahman Al Saud. This deal was simply that the U.S. would receive all the oil supplies it needed for as long as Saudi Arabia had oil in place and, in return for this, that the U.S. would guarantee the security both of Saudi Arabia and its ruling House of Saud, as detailed in my latest book on the new global oil market order. The implication of this – and clearly delineated at the time of the 1945 agreement by the U.S. side – was that the oil Saudi Arabia supplied to the U.S. would be at a ‘reasonable’ price based on previous historical levels. As also examined in the book, Saudi Arabia broke this the first time in the 1974/1975 Oil Crisis, which stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West. It then broke it again by launching the 2014-2016 Oil Price War with the intention of destroying or severely disabling for an extended period the U.S.’s then-nascent shale oil sector.
Trump’s view when he began his first term as President on 20 January 2017 was that the oil price needed to trade in a US$40-45 per barrel (pb) of Brent to US$75-80 pb range – later known in the markets as ‘The Trump Oil Price Range’. The floor was seen as the price at which most U.S. shale oil producers could make a decent profit, and the ceiling was seen as being most advantageous for U.S. economic growth for various economic and political reasons fully analysed in my latest book. That said, the Saudis were still trying desperately in 2017 to repair the appalling damage its 2014-2016 Oil Price War had done to its own finances and to those of its OPEC brothers, so they embarked on coordinated production cuts (with Russia as the new-found member of the expended ‘OPEC+’ cartel) to push the oil price higher. Harking back to the original 1945 U.S.-Saudi Arabia agreement, Trump said, “OPEC and OPEC nations are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it.” He added: “We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices. We want them to start lowering prices and they must contribute substantially to military protection from now on.” Following Trump’s direct and clear warnings to Saudi Arabia’s Royal Family in the third quarter of 2018 of the catastrophic consequences if the Kingdom continued to keep oil prices higher than the US$80 per barrel Brent price ceiling, Saudi Arabia increased production and oil prices came down again. That period was the only part of Trump’s presidency that saw his Oil Price Trading Range breached to the upside.
For Trump’s new Administration, OPEC – especially Saudi Arabia, and to a lesser degree the UAE – has ongoing value to it in two other regards, aside from the maintenance of the Trump Oil Price Range. The first is that Saudi Arabia is Iran’s historical enemy, which was used by the U.S. in the past to keep the Islamic Republic in check and can be utilised again. More specifically in this context, the greater the influence of Saudi Arabia’s Sunni creed of Islam in the Middle East, the less the power of the Shia Crescent in the region – led by Iran. In practice, the U.S. was for decades successful in balancing out the more extreme manifestations of both Sunni and Shia Islam against it and its Western allies by pursuing a ‘divide and rule’ policy between the two sides. This heavily drew on key elements of the ‘constructive ambiguity’ implicit in the triangular diplomacy approach formulated by the late U.S. geopolitical strategist Henry Kissinger and specifically brought to bear on the Middle East after the 1974/1975 Oil Crisis, as detailed in my latest book on the new global oil market order.
The second value Saudi Arabia – and the UAE this time as well – has for Trump’s new government is that moving them back towards the U.S. sphere of influence will be a loss for China in the zero-sum game of Middle East geopolitics. The drift to China of these two countries since Trump left the presidency the first time has posed two key dangers for the U.S. and its allies. First, it allowed OPEC to push oil prices much higher for extended periods, which caused enormous damage to many U.S. allies in the West and the East as spiking inflation drove interest rates higher and prompted economic declines. China had earlier protected itself from the effects of these oil price rises through the signing of all-encompassing long-term cooperation agreements with Iran, Iraq, and Russia, and similar deals with Saudi Arabia among others, which included oil and gas supplies being guaranteed to it at big discounts, as analysed in my latest book. Second, it allowed China to further extend the covert military element that lurks in the voluminous ‘Belt and Road Initiative’ (BRI) agreements that it has made with many countries, including several in the Middle East. The most public apotheosis of these were two heart-stopping discoveries made by U.S. intelligence agencies over the Christmas period of 2021. One was that China had been building a secret military facility in and around the big UAE port of Khalifa. Based on classified satellite imagery and human intelligence data, U.S. officials stated that China had been working for several months “to establish a military foothold in the UAE.” The second – at around the same time – was the finding by the same U.S. agencies that Saudi Arabia was manufacturing its own ballistic missiles with the help of China.
Trump has three key advantages in dealing with the original members of OPEC, the principal ‘+’ part (Russia), and China too. First, he is extremely unpredictable. As he himself said recently, China would never blockade Taiwan with him as President because “President Xi [Jinping] respects me and knows I’m f*****g crazy’, and he indicated that Russia President Vladimir Putin would never have sent tanks into Ukraine for the same reason. It may sound like bluster, but there is a great deal of truth to his conclusions. Second, he had complete power in his second term, with total control over his Republican Party, which in turn controlled both the Senate and the House of Representatives, and effectively the Supreme Court. And third, a dismal showing in its intended seven-day war to conquer Ukraine has damaged Russia’s standing in the Middle East, as has the very recent loss of Syria to the rebels. The same has occurred to China as a result of its declining economic fortunes since its Covid. In sum, a combination of threats (sanctions on selected OPEC countries and on OPEC itself through the ‘No Oil Producing and Exporting Cartels’ Bill, and withdrawal of U.S. military support to Saudi Arabia and other nations), and inducements (huge U.S. investment and security linkages through new Abraham Accords) could continue the recent shift of OPEC members back to the U.S.’s sphere of influence.
By Simon Watkins for Oilprice.com
