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You must give it to President Trump. He is becoming the most undecided president in American history. Its apparent and abrupt trend Sunday to increase tariffs on Chinese products less than a week after claiming that trade talks were proceeding well had caused a disruption in global financial markets, resulting in a fall in stock prices and world oil prices.
However, the biggest concern of the oil markets is the economic growth and therefore the demand for oil that will follow a rise in tariffs on Chinese products. The initial tariffs put in place last year on some $ 200 billion worth of Chinese goods had already caused a stagnation of the world economy, which has also affected the global demand for oil. Now that Trump has decided to raise tariffs on Chinese goods worth $ 200 billion, from 10% to 25%, with an additional $ 300 billion likely to be affected, the result on economic growth could be dark.
This places major oil producers and exporters like Russia and Saudi Arabia at the center of any economic downturn. Just as the Saudi-led producer group, OPEC +, was on the verge of restoring the balance of the global oil market, with oil prices rising by more than 30 percent this year, the new US tariffs imposed on China will force Riyadh to change its oil production strategy. again in less than a year, and this is due to Trump's actions. Last fall, Saudi Arabia succumbed to Trump's Twitter pressure to cut production and limit oil prices, but it was caught off guard when Trump unexpectedly announced its exemption in November. Iranian sanctions of 180 days for eight major importers of Iranian oil, including China and Japan. The decision, taken without consultation with his Saudi allies, caused a break in US-Saudi relations and damaged Trump's otherwise brilliant relationship with the royal family.
Since then, the kingdom has been reluctant to continue its efforts on Trump's tweets about oil production. However, this began to change when Trump, again unexpectedly, announced two weeks ago that he would not extend the Iranian oil exemptions for 180 days, while guaranteeing that Saudi Arabia and the OPEC would make up the difference by increasing oil production. Riyadh did not immediately agree that it would make up the shortfall due to the loss of more Iranian barrels from the market, but he also said it would probably cover the loss on time.
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Now, Trump has presented to the Saudis and other major oil producers another dilemma: a weakened global economy that will ensue because of a new sanction. Oil prices are again trending down, far beyond the Saudi budget breakeven point of around US $ 70 per barrel, and will push the kingdom to nervously monitor its coffers, in the hope of not seeing replicate the beginning of 2016 when world oil prices plunged below the economically damaging price of $ 30 a barrel.
The Saudis are increasingly developing a new oil production policy because of both Trump's overt intervention in global oil markets and other policies that have affected global oil demand. While Riyad ensures respect for his good relations with Washington, he must be exasperated, behind closed doors, by the American president, by his ability to change often and quickly course and by his use of Twitter as a presidential platform.
The increase in Trump's tariffs on China could ultimately be justified, as Beijing would have waived previous agreements reached in ongoing trade negotiations with Washington. Yet the collateral damage of a large-scale trade war between the world's two largest economies is cataclysmic.
By Tim Daiss for Oilprice.com
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