Rendition of US-Saudi Oil Drama and the Kingdom’s Resurgence Plot

Saudi Oil

Saudi oil and its old revival technique of introducing cuts to rebalance the oil market, is still far from done, the Gulf nation conveyed in a meeting in Baku on Sunday. In a statement, the Kingdom said that the oil market was far from done as global inventories were still rising despite harsh US sanctions on Iran and Venezuela. Cuts may continue deep into the second half of the year, is what the Kingdom connotes.

However, just four months ago Saudi had a completely different stance, as its partnership with the US was based on serving each other’s needs. Often hitting the jackpot together, the two nation’s leaders, Crown Prince Mohammed bin Salman (MbS) and US President Donald Trump, worked together until the US allowed many customers to continue oil purchases from Iran in November, resulting in price crash.

Though Trump has tried to play it safe by blaming the rise in prices on OPEC, and thanking Saudi as the prices fall, his comprehensive strategy is not letting the nation gain anything now. The United States has also been increasing its own oil exports in the recent past, to top-up the already prevailing tensions of the Kingdom.

Using different parameters and assessing juggernaut of those decisions, the account of Saudi oil portrays two different scenarios that may affect the market in an entirely adverse manner.

At the forefront stands Saudi’s alliance with the cartel know as OPEC+, which has worked to make sure that the oil prices do not crash beyond a level. The key player of which, Russia is already cutting oil output in a frenzy, conveying the homogeneous pattern, which will be followed at least until June. This is because any further step on Iran will only be cleared after Washington decides upon how it proceeds with Iran in May.

Even last month, when Trump tweeted and asked OPEC to “relax” its stance on tightening supplies, Khalid Al-Falih, Saudi Energy Minister tipped off the idea and said, he favors ‘maintaining output curbs in the second half of the year’.

As it stands, OPEC and its allies have already cut the oil production by 1.2 million barrels per day, to what they have reinstated as a move to rebalance the global oil market. It is clear that OPEC+ is retaliating to US becoming the largest exporter of oil, but why is US playing on safe grounds with Saudi?

According to the blueprint of government spending in 2019, Saudi requires an average oil price of around $80 a barrel to sponsor its diversification plans. Now, while the Kingdom is checking the production cuts to put upward pressure on the prices, US has no control over containing such situations.

Saudi Arabia has, therefore, cut its own production to well below what’s required. While the US, because of its anti-trust law, cannot afford to follow the same pattern. According to the federal and state government law, this is done with an aim to regulate the cult of fair competition for the benefit of customers in the market. Further keeping in check things such as formation of cartel and other activities that restrain the free flow of trade.

Externally, Iran’s production has already fallen to its lowest since 2013 after the US sanctions returned. Besides, even Venezuela’s output has plunged to its lowest in a decade, triggering economic collapse in both the nations.

Therefore, the US’ reliance on Saudi because of the current state of affairs automatically increases its dependence on the gulf nation’s oil despite it being the largest exporter about a year ago.

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