What’s a bit different, however, is who in the United States stands to win — or lose — depending on how the Saudi-Russian struggle comes out.
Decades ago, U.S. dependence on oil imports meant Americans mostly felt the impact from higher world oil prices as they were passed on to consumers at the gas pump.
Now, however, the United States is the world’s largest producer, thanks to the shale oil revolution (a.k.a. fracking). The country has acquired more influence over global oil and gas markets, and large groups have a stake in higher prices: independent oil producers, hundreds of thousands of oil workers, banks and states that rely on oil industry taxes.
Accordingly, President Trump has spoken out of both sides of his mouth about the Saudi-Russian oil price war. On March 9, he tweeted: “Good for the consumer, gasoline prices coming down!” On Thursday, he tweeted his “hope” that Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, known as MBS, would agree on production cuts, which “will be GREAT for the oil & gas industry!”
Trump’s outbursts are anything but presidential, but even a more circumspect, strategic Oval Office occupant would face a dilemma.
Is there any way out? The triangular U.S.-Saudi-Russian relationship has been shaping geopolitics and economics for almost half a century. In 1973, the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) crippled the U.S. economy by stopping oil exports in retaliation for U.S. backing of Israel’s war with Arab states.
The 1979 Iranian Revolution and subsequent Iran-Iraq war imposed another sudden cut in supply, and hike in prices, which the then-Soviet Union exploited by ramping up its production and exports.
Western countries’ countermeasures — conservation, especially — curbed demand and moderated prices. Yet in the late 1980s, Saudi Arabia pumped oil in generous quantities, mostly because of internal OPEC politics; the United States was happy because this also punished the Soviets as they were occupying Muslim Afghanistan. The resulting loss of income helped speed the U.S.S.R.’s collapse.
Today’s situation, ironically, has come about in part because of what all three countries have done since to protect themselves from a repetition of history.
Seeking “energy independence,” the United States gave relatively free rein to domestic producers and, under President Barack Obama, legalized crude oil exports for the first time since the 1970s. Putin improved the efficiency of Russia’s industry and used oil revenue to fill up a $570 billion reserve fund — about a third of gross domestic product. Under MBS, the Saudis have also amassed a sovereign wealth fund and reduced their debt-to-GDP ratio to just 25 percent.
Oil-market experts believe Russia and Saudi Arabia can probably pay their bills with a price per barrel at or near $30; meanwhile, a March survey by the Federal Reserve Bank of Dallas found that U.S. companies could survive at prices between $27 and $37, near where they were on Monday.
This is no doubt why Putin felt he could refuse MBS’s pleas to cut production in early March. He likely thought additional supply would hurt him less than it would hurt U.S. producers — payback for U.S. sanctions imposed on Russia because of its misconduct in Crimea, Venezuela and elsewhere.
And it is apparently why MBS felt he both could and must retaliate against Putin by surging production when Putin snubbed him.
All of that happened before these dictators quite realized the full economic impact of the coronavirus outbreak, and even then the oil market was already soft.
Now, storage facilities are overflowing and per-barrel prices could be heading for the low teens.
Lobbied by the oil industry, Trump appears tempted to broker a Saudi-Russian deal that U.S. producers can live with.
Down that road lies OPEC 2.0, with the United States and two sordid dictatorships determining the price industrialized democracies pay for energy.
The green alternative — ban fracking and move immediately to a non-fossil-fuel future — would leave everyone, the United States included, at the mercy of the Saudis and Russians.
Probably the most sustainable option, once the current crisis passes, would be an aggressive return to the strategy that tamed OPEC in the early ’80s — conservation — via gas taxes and other forms of carbon pricing.
As both the biggest producer of crude oil and the biggest consumer, the United States has a conflicted national interest. The one thing we can’t allow is for the likes of MBS and Putin to exploit it.