By Tim Daiss
It’s only been a few years ago, amid the ramp-up in U.S. shale oil production, that many thought the country would replace Saudi Arabia as global oil markets swing producer – a with good reason. Amid the wonders of fracking to unlock millions of barrels of previously unprofitable oil, the U.S. was flooding the market, so much that it created an unprecedented oil supply overhang that eventually saw prices plunge from over $100/barrel in mid-2014 to under $30/barrel by January 2016, ushering in the worst oil crash in a generation.
However, since that time reality has set it. Saudi Arabia convinced non-OPEC producers, including Russia, to join it in wresting back control of global oil markets via the so-called OPEC+ group of producers, and it’s worked. The loose collection of oil producers, just this year have driven oil prices northward nearly 40 percent after their deal to remove 1.2 million barrels per day (bod) of oil from global markets.
A reminder that middle east oil still rules the day came on Sunday when Kuwait’s Deputy Foreign Minister Khaled al-Jarallah said that Kuwait was looking at Iranian threats to block the Strait of Hormuz with concern. KUNA said that Jarallah was commenting on tensions in the region after the Iranian Revolutionary Guards top naval commander made a threat to close the strategic oil transport waterway in response to increased U.S. sanctions. “We are looking at these threats with concern and hoping as always to distance our region from this tension,” KUNA quoted al-Jarallah as saying. The threat came a day after President Trump announced he would not renew 180-day waivers for Iran’s largest oil importers.
By Wednesday, Iran’s foreign minister Mohammad Javad Zarif joined the fray, stating “We believe Iran will continue to sell its oil … (and) use the Strait of Hormuz. But if the United States takes the crazy measure of trying to prevent us from doing that, then it should be prepared for the consequences.” It is in our vital national security interest to keep the Persian Gulf open, to keep the Strait of Hormuz open. We have done that in the past and we will continue to do that in the future.”
And on Sunday, in a remark that prompted a response from Kuwait, Iran’s top general Mohammad Bagheri also warned Tehran could close the strategic Strait of Hormuz shipping route if it faces more “hostility.”
“We are not after closing the Strait of Hormuz but if the hostility of enemies increases, we will be able to do so,” the armed forces’ chief of staff told semi-official ISNA. “Also if our oil does not go through the strait, other countries’ oil will certainly not cross the strait, too,” he added.
Though Iran has threatened to close the Strait of Hormuz countless times over the years, it nonetheless points to the geopolitical complexity of the region where most OPEC members are, including top global oil exporter Saudi Arabia. Around a third of the world’s sea-borne crude oil passes through the Strait of Hormuz every day, making it a strategic artery linking the Middle East crude producers to key markets in Asia Pacific, Europe, North America and beyond.
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Trump’s incessant tweets
Of course, global oil markets have a somewhat new factor to contend with – this time coming from a world away via social media – President Trump’s oft ill-timed and often perplexing Tweets over a host of issues, including pressure for OPEC to increase oil production to offset upward pressure on prices.
Oil prices kicked off the start of the week trending downward after Trump pressured OPEC on Friday to rising output. Prices at the end of the week also headed south amid Trump’s comments that he had called Saudi Arabia and demanded that they increase production. Prices dropped by nearly 3 percent on Friday as traders weighed uncertainty tied to Trump’s plea to OPEC to lower prices. “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement,” the president said in a Tweet.
Besides Trump’s unorthodox methods to communicative both at home and with allies and foes alike, the takeaway is that though the U.S. is now the world’s largest oil producer, recently pumping a record 12.1 million bpd, a U.S. president still has to resort to tactics to try to persuade middle eastern oil producer to help control prices. Though the medium has changed, it’s a dilemma that has faced every U.S. president from Richard Nixon to Trump – and will likely do so in the foreseeable future.