U.S. Urges Saudis to Stabilize Oil Prices, Underscoring Continued Energy Insecurity

Tomorrow in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) will meet with several non-OPEC producers, including Russia, to chart the future of the global oil market. The group – informally known as OPEC plus – will decide whether to ease production cuts that were implemented in 2016 in an effort to drive up prices, which had crashed to a 13-year low. Those production cuts (together with unanticipated supply disruptions and rising global demand) proved extremely successful, with prices last month rising to their highest levels in more than three years. 

The fear now is that if the current cuts are sustained, the market could tighten too much, triggering a major price spike that would damage global growth. Two emerging situations are of particular concern: the continued implosion of Venezuela’s oil sector and re-imposed U.S. sanctions that could significantly reduce Iranian exports.

The United States has been pressing OPEC to amend its production-cutting scheme. Just before President Donald Trump’s May 8 decision to withdraw from the Iran nuclear deal, a senior U.S. official called Saudi Arabia to seek its help in making up for lost Iranian barrels. That request was bookended by two blunt tweets from Trump blasting OPEC’s role in driving up prices. “Looks like OPEC is at it again,” Trump wrote in April. “Oil prices are artificially Very High! No good and will not be tolerated!” Ten days ago, he reiterated the point: “Oil prices are too high. OPEC is at it again. Not good.”

The Saudis have been responsive. Within hours of Trump’s withdrawal from the nuclear deal, Riyadh issued a reassuring statement that it would work to offset any resulting shortages. Over the past month, the kingdom has unilaterally boosted its own daily production by over 100,000 barrels. In advance of the Vienna meeting, the Saudis have worked assiduously to forge consensus on increasing overall output by up to one million barrels per day.

Interestingly, Riyadh’s main partner in this effort has been Russia – which, for its own economic interests, wants Russian companies to expand output. Last week, Saudi Crown Prince Mohammed bin Salman traveled to Moscow to attend the World Cup’s opening match and meet with President Vladimir Putin. They agreed not only to seek a production increase in Vienna, but (more ominously) to pursue strategic cooperation that would allow them to jointly manage oil markets in the future.

Not surprisingly, Iran – facing renewed U.S. sanctions and declining exports – has led opposition to the Saudi-Russian effort. While some production increase still seems likely in Vienna, its size remains in question. If the Iranians veto a deal outright or render it too small to stabilize the market going forward, the Saudis and Russians may be left to act unilaterally.

For the U.S., the good news is that the world’s two largest exporters, Saudi Arabia and Russia, are for the moment acting responsibly to ensure adequate global supplies. The bad news is the extent to which vital U.S. interests surrounding issues of energy security remain hostage to decisions made by authoritarian regimes in places like Riyadh and Moscow – even after ten years of a historic American oil boom. The situation underscores the urgent need for a comprehensive American energy strategy that focuses, in particular, on rapidly breaking oil’s monopoly over the U.S. transportation sector by encouraging alternative fuels that can be entirely produced from domestic sources, including electricity, biofuels, and natural gas.

John Hannah is senior counselor at the Foundation for Defense of Democracies.

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