Sign Up for FREE Daily Energy News
  • Stay Connected
  • linkedin
  • twitter
  • facebook
  • youtube2

Copper Tip Energy Services
Vista Projects
Copper Tip Energy
Vista Projects

Tips for Trump After Clumsy Dance With OPEC: Meghan O’Sullivan

These translations are done via Google Translate

June 28, 2018, by Meghan L. O’Sullivan


The world was in suspense a week ago wondering whether OPEC and non-OPEC producers would put more oil on tightening global markets. Turns out: Yes, they will. But, as the story does not end here, it is worth assessing where we are and how we got here. While the U.S. seems to have gotten what it wanted, it is not all good news.

It looks encouraging at first. The new energy abundance largely ushered into the world by the prolific U.S. production of shale oil and gas has clearly given the Trump administration greater confidence in how it conducts itself in foreign policy. Previous administrations spent significant time and effort considering how to manage the oil market implications of their preferred approaches to national security dilemmas.

In contrast, President Donald Trump seems comfortable taking an aggressive posture simultaneously toward Iran and Venezuela at a time of tightening oil markets. This suggest a new meaning to the administration’s policy of “Energy Dominance”: the ability of the president to make decisions without feeling constrained in his non-energy policy by energy realities. This, in my mind, would be the true measure of energy independence.

But this recent dance with OPEC suggests that, while the U.S. has moved a fair distance in this direction, it is not quite there yet. Trump seems to have been too confident in his ability to make foreign policy first and think about energy next. A byproduct of his “energy dominance” approach has been to reinforce OPEC’s relevance at a time when the future of the cartel has been in question. Given Trump’s longstanding animosity toward OPEC, this result was surely unintended.

The shale revolution in the U.S. has challenged — and continues to challenge — OPEC as an organization because it adds a new “short cycle” dimension to global energy markets. This makes it harder for OPEC to reap the benefits of its actions and means that OPEC must tolerate American producers taking the market share of its members if they want to raise prices by cutting production. But by aiming to take as much Iranian oil off the market as possible — at a time of collapse in Venezuela, robust global growth in oil demand, and infrastructure constraints in the U.S. — the Trump administration forced OPEC into pole position by making the health of the global economy dependent on its actions. This reintroduced the dynamic from which I thought the president was most keen to disentangle himself: being reliant on Middle Eastern producers — and in this case Russia as well — to ensure U.S. interests.

Another takeaway from the recent dance between OPEC and the U.S. is that, in matters of oil (and most other things), private diplomacy is superior to public shaming when the goal is to motivate others to take a particular action.

Trump may be congratulating himself on moving OPEC to put more oil on the markets though his series of tweets berating the organization. While, at least in the immediate term, the U.S. got what it wanted (more oil on global markets), it almost certainly could have enjoyed the same result with fewer costs through a more private approach.

No doubt the opinions of the U.S. president mattered to some OPEC members, particularly Saudi Arabia. But the concerns of the White House were only one of a growing number of reasons OPEC was motivated to produce more oil. Equally or more important were three other factors. First, there are strong prospects of more production shortfall in Libya, Venezuela and elsewhere. Second, there exists growing evidence — seen in energy-inspired protests around the world — that the higher oil prices are creating strains that could undermine global economic growth and accelerate a shift in demand from oil to other energy sources. And, lastly, there was the fact that Russia clearly intended to put more oil on the market regardless of the outcome of the meetings in Vienna. Had it done so absent a consensus, the landmark agreement between OPEC and non-OPEC producers would have dissolved unceremoniously.

The tweets also set a dangerous precedent. If Trump feels inclined to weigh in publicly before every OPEC meeting, he will soon ensure that Saudi Arabia and others cannot deliver an outcome consistent with U.S. interests. Already, the tweets of recent weeks complicated the efforts of Saudi Arabia and others to negotiate the desired result. They made it difficult for Riyadh not to look like a lackey of Washington, thereby to some extent weakening Riyadh and its role in the organization and strengthening Iran’s protests. This dynamic will only intensify with repeated Twitter commentary from the U.S. president.

As I discussed in my closing speech at the OPEC seminar last week, the events of the past weeks suggest that there will be a continued need for close cooperation between oil producers and consumers over the coming months and years as the slow transition to a more sustainable energy future unfolds. Unfortunately, while having more room to maneuver than its predecessors, the Trump administration still needs to manage these relationships and, to some extent, to think about the balance between energy markets and national security priorities. Otherwise, it could trip over itself in its next dance with OPEC.

Share This:

More News Articles