S.Arabia’s role in oil markets overated

Last month, as controversy over the killing of Saudi journalist Jamal Khashoggi intensified, the general manager of the Riyadh-owned al-Arabiya news channel wrote a caustic op-ed warning that Saudi Arabia could use its power over the global oil market to hurt the United States if it imposes sanctions.
“If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure,” Turki Aldakhil wrote, warning that the United States would “stab its own economy to death, even though it thinks that it is stabbing only Riyadh!”
This threat prompted criticism and ridicule from experts, who argued that it overestimated Saudi Arabia’s economic clout. But at least one key figure apparently took it seriously: Trump.
On Wednesday, after weeks of making excuses for Saudi Arabia over its role in the killing of Khashoggi, Trump took to Twitter to celebrate the recent low oil prices, which he described as akin to a “big tax cut” for Americans, and to thank Saudi Arabia specifically for what he viewed as its role in pushing down the prices.
“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!” he tweeted.
The tweet was, at best, misleading. It betrayed an apparent misunderstanding of the international oil market, with Trump mixing and matching the low US oil price (the West Texas Intermediate Crude Oil, or WTI, price) with the high international price (the Brent price).
Moreover, by focusing on Saudi Arabia, Trump’s tweets ignored other factors driving the fall in oil prices, such as concerns about global economic growth and a US-China trade war, as well as a rise in US oil production and US exemptions to sanctions on Iranian oil.

In fact, Saudi Arabia is said to be considering cutting oil production next year in a bid to increase prices because of these factors.
But Trump has long fixated on Saudi Arabia’s role in the oil markets, for better or worse. Recently, he called on Saudi Arabia specifically to not cut oil production. And, more generally, the US president has inflated the economic value of Saudi Arabia to the United States several times in recent months.
On Twitter, Trump has a long-standing habit of talking about oil prices.

In 2011, he suggested repeatedly that the United States should simply take Iraq’s oil. He has also suggested that then-President Barack Obama made a deal with Saudi Arabia ahead of the 2012 election under which the kingdom increased oil production to keep prices low.
But when it comes to Saudi domination of the oil markets, Trump’s perception appears to be stuck in the past - in particular, the 1973 oil crisis, during which a group of Middle Eastern states refused to sell oil to the United States, which resulted in shortages and increased prices.
Writing for The Washington Post last month, Jeff Colgan, an oil politics expert at Brown University, argued that the way the oil market works had changed dramatically since 1973, meaning that any future embargoes would have far less effect. The system has become more flexible, less reliant on long-term contracts, so it is easy for a consumer to get imports from another producer at short notice. The United States also has been producing more oil itself and imports only a small amount of Saudi oil.
Even though Saudi Arabia may be able to affect the price of oil in the short term, Colgan wrote, Riyadh would be cautious about the long-term effect.

“It encourages other producers, including those in the United States, to produce more,” he wrote. “Over time, that brings the price down while simultaneously eating into Saudi Arabia’s market share.”
Ellen Wald, author of “Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power,” argued that Saudi Arabia had no plausible leverage over the United States. “If Riyadh directed the national oil company, Saudi Aramco, to halt exports to the United States today, it would primarily hurt Aramco itself,” Wald wrote in the New York Times, noting that Aramco owns the largest refinery in the United States.
It’s likely that Saudi Arabia’s royals know this. After Aldakhil’s al-Arabiya commentary was published, the Saudi Embassy in Washington moved to distance the government from his stance. A statement released on the same day by the official Saudi Press Agency offered only a far more vague warning.
“The Kingdom also affirms that if it receives any action, it will respond with greater action, and that the Kingdom’s economy has an influential and vital role in the global economy,” that statement said.
If Saudi Arabia has doubts about its economic worth to the United States, it should be thankful that Trump apparently does not share them. The US leader has repeatedly inflated the value of arms deals with Saudi Arabia. Now, despite the global outrage over Khashoggi’s killing, he continues to insist that Saudi oil is vital to US economic prosperity.

Taylor writes about foreign affairs for The Washington Post. Originally from London, he studied at the University of Manchester and Columbia University.