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Trump Climbdown Shows That Saudis Hold The Cards - And The Oil

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By Jim Krane

President Trump just found out that Washington can tighten the screws on Iran or it can tighten the screws on Saudi Arabia. But it cannot do both.

For the president, and for Republicans facing a do-or-die midterm election, the affair of the apparently abducted and murdered Saudi journalist Jamal Khashoggi comes at an exquisitely bad time.

With the US Congress braying for a tough response, Trump faces a dire choice.

He can maintain the vestiges of America’s role as arbiter of international norms and punish Saudi Arabia in a number of ways: cutting off arms sales, withdrawing US diplomats or something else.

Or he can provide the Saudis an exit ramp, a face-saving way to extricate the kingdom from a major predicament.

The administration’s apparent choice of the “exit ramp” option exposes both the crude realpolitik guiding its foreign relations, as well as a weak hand in its dealings with Saudi Arabia.

Trump’s climbdowns are the evidence. After dispatching his secretary of state for a private meeting with King Salman, Trump suggested Khashoggi met his fate via “rogue killers.” A new, more palatable version of the grisly events was emerging.

Why would Trump back away from confronting Saudi Arabia? Arms sales is Trump’s answer. A stronger possibility is evident in numerous presidential Tweets: Trump needs Saudi Arabia to get moving on crude oil production, far beyond Saudi Aramco’s modest increases to date.

And why might Trump need more Saudi oil? Because of his decision in May to pull America out of the Iranian nuclear pact and re-impose US sanctions.

US sanctions are attempting to remove 1.5 million barrels per day – or more – of Iranian oil from global markets by the deadline of Nov. 4, just two days before Americans head to the polls on Election Day.

The increase in Saudi production since June must strike the Trump administration as frustratingly small: from 10.4 million barrels per day in June, Saudi production actually fell to 10.3 million barrels per day in July, before rising to almost 10.5 in September, according to MEES. The Saudi oil minister says the kingdom will hit 10.7 m b/d by the end of October, and plans another increase in November.

Meanwhile, Iran’s exports have fallen at least 1m b/dyear-on-year. The 300,000 b/d Saudi increase is nowhere near to covering the sanctions shortfall. Normally, sucker-punching Iran carries few political risks for American politicians, as long as Saudi Arabia swings into action and insulates the US motorist from the costs.

And why shouldn’t the Saudis go along, if they can? After all, the kingdom welcomed Trump’s re-imposition of the Iran sanctions, which align with Saudi aims in the region. Handing Iran’s oil market share to Saudi Arabia is another gift, since Iran’s lost revenues could reach $160 million per day at current prices.

But if the Saudis balk – even for a few weeks – Trump’s get-tough-on-Iran posture could backfire by forcing up global oil prices and, shortly thereafter, American gasoline prices.

Despite being embattled over the Khashoggi affair, Saudi Arabia still has a strong hand, since the kingdom reaps an increase in oil revenues whether Trump gets tough or goes soft.

Until now, the Saudis could be counted on to play along with US Mideast policy. The US sanctions playbook has always ensured Riyadh was on board ahead of American intervention against any oil-exporting country. Over the years, the Saudis have stepped in to replace exports from Iran, Iraq, Kuwait, Libya and others.

In effect, the Saudis helped protect the American motorist—and global markets—from American foreign policy. In return, Washington provided hard security and weapons sales.

This time Saudis have made clear that if Trump chooses the path of confrontation, the kingdom’s commitment to covering lost Iranian oil exports could falter.

“If President Trump was angered by $80 oil, nobody should rule out the price jumping to $100 and $200 a barrel or maybe double that figure,” wrote Turki al-Dakhil, an ally of the Royal Court and director of the Saudi-owned Al Arabiya news network.

The Saudi oil minister and embassy in Washington played down al-Dakhil’s comments, no doubt understanding how devastating a politicized Saudi production cut would be to the kingdom’s international stature. Still, the outburst served its purpose. The grim specter of the 1973 embargo’s quadrupling of oil prices was not lost on the Trump administration.

Regardless, the decision to soft-pedal the Saudis plays well with the Trump administration’s worldview, where international norms mean little; even less when cheap Election Day gasoline is on the line.

And anyway Trump’s refusal to appoint US ambassadors to posts around the world, including Saudi Arabia, leaves him without the option to withdraw an ambassador as a symbol of displeasure.

Much of this comes back to Trump’s unilateral decision to walk away from America’s allies and the Iran deal. The US president simply has no maneuvering room.

Being tough on Iran is easy. Not so easy to get tough on Saudi Arabia.

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Jim Krane is the Wallace S. Wilson Fellow for Energy Studies at Rice University’s Baker Institute. Follow him on Twitter on @jimkrane