As tensions between OPEC (cough - the Saudis - cough) and Washington rise over the supply (and price) of oil globally amid a pandemic-driven demand collapse, it would appears President Trump may have just gone 'nuclear'.
"...there will be blood."
The Wall Street Journal reports that The U.S. is removing Patriot anti-missile systems from Saudi Arabia and is considering reductions to other military capabilities - marking the end, for now, of a large-scale military buildup to counter Iran, according to U.S. officials.
As a reminder, OilPrice.com's Simon Watkins warned last week that President Donald Trump was considering all options available to him to make the Saudis pay for the oil price war as the crash that followed has done significant damage to the U.S. oil industry.
With last month having seen the indignity of the principal U.S. oil benchmark, West Texas Intermediate (WTI), having fallen into negative pricing territory, U.S. President Donald Trump is considering all options available to him to make the Saudis pay for the oil price war that it started, according to senior figures close to the Presidential Administration spoken to by OilPrice.com last week. It is not just the likelihood that exactly the same price action will occur to each front-month WTI futures contract just before expiry until major new oil production cuts come from OPEC+ that incenses the U.S. nor the economic damage that is being done to its shale oil sector but also it is the fact that Saudi is widely seen in Washington as having betrayed the long-standing relationship between the two countries. Right now, many senior members on Trump’s closest advisory circle want the Saudis to pay for its actions, in every way, OilPrice.com understands.
This relationship was established in 1945 between the U.S. President Franklin D. Roosevelt and the Saudi King at the time, Abdulaziz, on board the U.S. Navy cruiser Quincy in the Great Bitter Lake segment of the Suez Canal and has defined the relationship between the two countries ever since.
As analysed in depth in my new book on the global oil markets, the deal that was struck between the two men at that time was that the U.S. would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the U.S. would guarantee the security of the ruling House of Saud.
The deal has altered slightly since the rise of the U.S. shale oil industry and Saudi Arabia’s attempt to destroy it from 2014 to 2016 in that the U.S. also expects the House of Saud to ensure that Saudi Arabia not only supplies the U.S. with whatever oil it needs for as long as it can but also that it also allows the U.S. shale industry to continue to function and to grow.
For the U.S., if this means that Saudi Arabia loses out to U.S. shale producers by keeping oil prices up but losing out on export opportunities to U.S. firms then that is just the price that the House of Saud must pay for the continued protection of the U.S. - politically, economically, and militarily.
And now, as The Journal reports, the U.S. is removing four Patriot missile batteries from Saudi Arabia along with dozens of military personnel sent following a series of attacks on the Saudi oil facilities last year, according to several U.S. officials. The attacks were part of hostilities that took place over several months.
President Donald Trump has made clear whenever he has sensed a lack of understanding on the part of Saudi Arabia for the huge benefit that the U.S. is doing the ruling family:
“He [Saudi King Salman] would not last in power for two weeks without the backing of the U.S. military.”
Trump has a very good point, as it is fair to say that without U.S. protection, either Israel or Iran and its proxy operatives and supporters would very soon indeed end the rule of the House of Saud, even though The Journal reports that The Pentagon’s removal of the Patriot antimissile batteries from Saudi Arabia, as well as the other reductions, are based on assessments by some officials that Tehran no longer poses an immediate threat to American strategic interests.
In a U.S. presidential election year, the last thing that a U.S. president wants is increasing diesel prices or shortages making a coronavirus-hit economy even worse. It is a fact that since the end of the First World War, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two calendar years ahead of an election whilst presidents who went into a re-election campaign with the economy in recession over the same time-frame won only once out of seven.
This said, it may be that Trump will use the threat of such military asset removals from Saudi Arabia, as his mercurial reputation may work to convince the Saudis that he is unpredictable enough to do just that, regardless of the short-term economic consequences.