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OThe markets were already a knife ahead of the controversy surrounding the disappearance of Saudi journalist Jamal Khashoggi on 2 October. But if the chances of oil prices reaching $ 100 a barrel were high before then, it may be inevitable now that Saudi Arabia is barely veiled to use its unparalleled oil production capacity as a political weapon. Khashoggi's case is constantly turning.
Turkish reports that Khashoggi, a Washington Post columnist based in the Washington Post and a critic of the Saudi government, was reportedly murdered in the Saudi Arabian consulate in Istanbul could wreck oil markets that were already on the verge of 39, explode due to the impending sanctions imposed by the United States on Iranian oil sector and the continuation of the crisis in Venezuela.
Saudi Arabia, at the request of President Trump, has dutifully pumped more oil in recent months to control the oil markets, where the benchmark Brent crude costs about $ 76 per barrel. The kingdom was planning to produce a record-breaking record of 10.7 million barrels a month this month and had indicated that it was ready to use all its capacity of 12 million barrels a day if needed, the Trump government seeking to bury Iran's oil exports as of November 5. sanctions come into play.
Suddenly, this no longer looks like a safe bet. Trump warned that Riyadh could be "severely punished" for being involved in the disappearance or murder of Khashoggi, while a group of US senators called for an investigation, triggering a process that could eventually force the White House to decide to punish its members. from the Saudi government.
At the same time, Saudi leaders have denied any wrongdoing and said sanctions would be punished by "even more stringent measures." Riyadh specifically notes that "the economy of the kingdom has an influential role in the global economy". Given that the kingdom's economy is almost entirely dependent on oil revenues, it is threatening to use its oil reserves as a political weapon.
Saudi Energy Minister Khalid al-Falih used a speech Monday in New Delhi to try to calm the markets, assuring "oil consumers around the world that we want to continue to support the growth of oil and gas." 39, world economy, prosperity of consumers. around the world."
The only thing left for oil markets to understand is the "good cop, bad cop" routine, while Saudi Crown Prince Mohammed bin Salman calls Khashoggi's murder a "heinous crime."
Meanwhile, Trump seems less and less inclined to adopt a hard line, minimizing the prospect of sanctioning Saudi Arabia or limiting arms sales to the United States to the kingdom, citing the risk of "murderers" after a telephone conversation with King Salman.
It remains to be seen how this position would play politically at home for the Trump GOP, with the imminent mid-term elections.
But this episode reminds us of the pitfalls of over reliance on Saudi Arabia and OPEC for affordable energy. Not long ago, global oil markets were at the center of US concerns as shale production developed so rapidly that experts thought the price of oil would be capped at $ 50 or $ 60 on barrel in the near future. But all this changed when Trump promised to reduce Iran's exports to zero, about 2.2 million barrels a day, after the withdrawal from the US market with the third largest OPEC producer. The collapse of Venezuela, also accelerated by US policy, fueled fears of a supply shortage in the future.
The reality is that the United States now depends on Saudi Arabia to manage the global oil market. Let's not forget that US refiners still import more than 850,000 barrels of Saudi oil a day – a heavy, sour mix that shale formations do not produce.
Despite Riyadh's daring speeches on economic and social reforms, the Khashoggi incident is another sign that change is often a step forward, two steps back in the kingdom. The crackdown by Saudi leaders and the dismantling of their political opponents last December was a red flag for investors considering joining Vision 2030, Prince Mohammed's vast economic reform plan aimed at diversify away from oil and attract more foreign investment. The subsequent decision to defer indefinitely the IPO of national oil giant Aramco was an additional clue to the closure of Saudi Arabia's gates. Decisions on oil policy would remain under the Royal Court.
The Trump administration can not forget the type of partner it has in Riyadh. Diplomacy must be correct while remembering that some things never change. It would be wise for the White House to focus on what it can control to keep energy prices under control in the short term. To reduce Iran's exports to zero is not necessary to inflict serious economic difficulties on Tehran. By granting sanctions waivers to some Asian allies, part of Iran's oil would flow and help control prices.
At the same time, it is time to put "energy dominance" in the United States at the top of the agenda, especially if countries like Russia and possibly Saudi Arabia use it as a political weapon. US oil and gas production and exports have increased to the point where bottlenecks in infrastructure slow the pace of growth. Trump has pledged a $ 1 trillion infrastructure program, funded by public-private partnerships, but has not yet been completed. Such a program could go a long way towards releasing more US energy into global markets, leaving America less vulnerable to power struggles by Middle East states with poor human rights records.
Dan K. Eberhart is CEO of Canary, LLC, a Phoenix-based drilling services company and one of the largest private oilfield service companies in the United States.
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