News & Politics

Trump Threatened to Withhold Military Aid From Saudis Unless They Cut Oil Production

An oil rig is pictured Wednesday, Sept. 6, 2017 in Andrezel, south east of Paris . France's government has unveiled a law to ban all production and exploration of oil and natural gas by 2040 on the country's mainland and overseas territories. The move is largely symbolic, however, as France's oil and gas production represents just 1 percent of national consumption _ the rest is imported. (AP Photo/Thibault Camus)

As the oil war raged between Saudi Arabia and Russia, Donald Trump, seeing the price of oil fall through the floor, threatened Saudi Arabia by saying he would withhold military aid unless they cut production.

The ultimatum was delivered in a phone call between Trump and Saudi Crown Prince Mohammed bin Salman in early April. Prince bin Salman was so taken aback by Trump’s threat, that he dismissed aides who were in the room so that he could talk to Trump alone.

Indeed, it was an unprecedented action by the president, but easily justifiable. A few more weeks of the oil war and the U.S. petroleum industry would have been on its knees. As it happened, dozens of companies have gone bankrupt because the price of crude oil fell so far.

Reuters:

The threat to upend a 75-year strategic alliance, which has not been previously reported, was central to the U.S. pressure campaign that led to a landmark global deal to slash oil supply as demand collapsed in the coronavirus pandemic – scoring a diplomatic victory for the White House.

While no one says that the disappearing price of oil wasn’t good for consumers, it would have been worse for the United States if it didn’t have much of an oil industry left when the dust from the oil war cleared.

Trump delivered the message to the crown prince 10 days before the announcement of production cuts. The kingdom’s de facto leader was so taken aback by the threat that he ordered his aides out of the room so he could continue the discussion in private, according to a U.S. source who was briefed on the discussion by senior administration officials.

The effort illustrated Trump’s strong desire to protect the U.S. oil industry from a historic price meltdown as governments shut down economies worldwide to fight the virus. It also reflected a telling reversal of Trump’s longstanding criticism of the oil cartel, which he has blasted for raising energy costs for Americans with supply cuts that usually lead to higher gasoline prices. Now, Trump was asking OPEC to slash output.

State-run oil companies can absorb those kinds of losses because they’ve got government money to fall back on in a crisis. But when the break-even price is about $30 to get the oil out of the ground, but a barrel of crude was selling at less than $10, you’re not going to stay in business long.

Trump was correct to make the threat in order to keep the American oil industry from total collapse. It’s going to be a long way back to solvency for many companies, and while there will be grumbling in Congress about a bailout of the oil industry, smaller operators will almost certainly be in line for some form of aid.