Cut oil supply or lose US military support, Trump threatens MBS

WASHINGTON: US President Donald Trump has now given an ultimatum to Saudi leaders to end escalating oil price war.

“Unless the Organization of the Petroleum Exporting Countries (OPEC) started cutting oil production, I would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from the kingdom,” Trump told Saudi Crown Prince Mohammed bin Salman on a phone call on April 2. Four sources familiar with the matter told Reuters.

Prince Mohammed bin Salman was reportedly so taken aback by the threat that he ordered his aides out of the room so he could continue the discussion in private, said a U.S. source who was briefed on the discussion by senior administration officials.

The call was Trump’s effort to protect the U.S. oil industry from a historic price meltdown as governments shut down economies worldwide to fight the virus. Trump has long criticized the oil market participants and blasted for raising energy costs for Americans with supply cuts that usually lead to higher gasoline prices.

A senior U.S. official told Reuters that the administration notified Saudi leaders: “Without production cuts, there would be no way to stop the U.S. Congress from imposing restrictions that could lead to a withdrawal of U.S. forces. We are defending your industry while you’re destroying ours.”

Reuters asked Trump about the talks in an interview Wednesday evening at the White House if he told the crown prince that the U.S. might pull forces out of Saudi Arabia, Trump said, “I didn’t have to tell him.”

“I thought he and President Putin, Vladimir Putin, were very reasonable,” Trump said. “They knew they had a problem, and then this happened.”

Asked what he told the Crown Prince Mohammed, Trump said: “They were having a hard time making a deal. And I met telephonically with him, and we were able to reach a deal” for production cuts, Trump said.

Saudi Arabia’s media office did not respond for comment. A Saudi official who asked to maintain anonymity stressed that the agreement represented the will of all countries in the so-called OPEC+ group of oil-producing nations.

“Saudi Arabia, the United States and Russia have played an important role in the OPEC+ oil cut agreement, but without the cooperation of the 23 countries who took part in the agreement, it would not have happened,” said the Saudi official, who declined to comment on the discussions between U.S. and Saudi leaders.

A week before the call between US and Kingdom, U.S. Republican Senators Kevin Cramer and Dan Sullivan had introduced legislation to remove all U.S. troops, Patriot missiles and anti-missile defense systems from Saudi Arabia unless the kingdom cut oil output.

The kingdom had increased the output in April, unleashing a flood of crude into the global supply after Russia refused to deepen production cuts in line with an earlier OPEC supply pact.

On April 12, under pressure from Trump, the world’s biggest oil-producing nations agreed to the largest production cut ever negotiated. OPEC, Russia and other allied producers slashed production by 9.7 million barrels per day (bpd), or about 10% of global output. Half that volume came from cuts of 2.5 million bpd each by Saudi Arabia and Russia, whose budgets depend on high oil-and-gas revenues.

Despite the agreement to cut a tenth of global production, oil prices continued to fall to historic lows. U.S. oil futures dropped below $0 last week as buyers had no place to store the crude. Brent futures, the global oil benchmark, fell towards $15 per barrel – a level not seen since the 1999 oil price crash – from as high as $70 at the start of the year.

As governments worldwide start to open their economies and fuel demand rises with increased travel the deal for supply cuts could eventually boost prices. Whatever the impact, the negotiations mark an extraordinary display of U.S. influence over global oil output.

Cramer, the Republican senator from North Dakota, told Reuters he spoke to Trump about the legislation to withdraw U.S. military protection from Saudi Arabia on March 30, three days before the president called Crown Prince Mohammed.

U.S. Energy Secretary Dan Brouillette told Reuters Trump has reserved the right to use every tool to protect U.S. producers, including our support for their defense needs.

The strategic partnership dates back to 1945, when President Franklin D. Roosevelt met with Saudi King Abdul Aziz Ibn Saud on the USS Quincy, a Navy cruiser. A deal was signed: U.S. military protection in exchange for access to Saudi oil reserves. Today, the United States has about three thousand troops in the country, and the U.S. Navy’s Fifth Fleet protects oil exports from the region.

Saudi Arabia relies on the United States for weapons and army against regional rivals such as Iran. The kingdom’s vulnerabilities, however, were exposed late last year in an attack by 18 drones and three missiles on key Saudi oil facilities. Washington blamed Iran; Tehran denied it.

Trump initially welcomed lower oil prices, saying cheap gasoline prices were akin to a tax cut for drivers.

That changed after Saudi Arabia announced in mid-March it would pump a record 12.3 million bpd – unleashing the price war with Russia made clear that U.S. oil companies would be hit hard in the crude price collapse. 

On March 16, Cramer was among 13 Republican senators who sent a letter to Crown Prince Mohammed reminding him of Saudi Arabia’s strategic reliance on Washington. The group also urged Commerce Secretary Wilbur Ross to investigate whether Saudi Arabia and Russia were breaking international trade laws by flooding the U.S. market with oil.

On March 18, the senators – a group that included Sullivan of Alaska and Ted Cruz of Texas – held a rare call with Princess Reema bint Bandar bin Sultan, the Saudi ambassador to the United States. Cramer called the conversations “brutal” as each senator detailed the damage to their states’ oil industries.

“She heard it from every senator; there was nobody that held back,” Cramer told Reuters.

Cramer said the princess relayed their comments to officials in Saudi Arabia, including the energy minister. The senators told the princess that the kingdom faced rising opposition in the Senate to the Saudi-led coalition that is waging a war in Yemen against Houthi rebels.

Saudi and U.S. officials have said the Houthis are armed by Iran, which Tehran denies. The backing of Senate Republicans over Yemen had proved crucial for Saudi Arabia last year. The Senate upheld several measures seeking to end U.S. weapons sales and other military support to Saudi Arabia amid outrage over the Yemen conflict, which has caused more than 100,000 deaths and triggered a humanitarian crisis.

Cramer said he made a phone call to Trump on March 30, about a week after he and Sullivan introduced their bill to pull U.S. troops from Saudi Arabia. The president called Cramer back the same day with Energy Secretary Brouillette, senior economic adviser Larry Kudlow and U.S. Trade Representative Robert Lighthizer on the call, the senator said.

“I said the one person that you don’t have on the call that can be very helpful is Mark Esper,” the defense secretary, Cramer recounted, saying he wanted Esper to address how U.S. military assets in Saudi Arabia might be moved elsewhere in the region to protect U.S. troops.

After the conversation with the Saudi crown prince, and another the same day with Putin, Trump tweeted that he expected Saudi Arabia and Russia to cut output by about 10 million barrels.

Riyadh and Moscow later confirmed they had restarted negotiations.

On April 3, Trump hosted a meeting at the White House with senators Cramer, Cruz, and Sullivan, and oil executives from companies including Exxon Mobil Corp, Chevron Corp, Occidental Petroleum Corp and Continental Resources.

Cramer told Trump that “Washington can use the billions of dollars it spends defending Saudi Arabia on other military priorities if our ‘friends’ are going to treat us this way.”

“The prospect of losing U.S. military protection made the royal family ‘bend at the knees’ and bow to Trump’s demands,” a Middle Eastern diplomat told Reuters.

After prolonged negotiations, top producers pledged their record output cut of 9.7 million bpd in May and June, with the understanding that economic forces would lead to about 10 million bpd in further cuts in production from other countries, including the United States and Canada.

Trump hailed the deal and cast himself as its broker. “Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 Million Barrels a day…” he tweeted shortly after the deal.

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