Trump Should Prepare To Be Scapegoated For A Failed Russia-Saudi Oil Meeting

At the urging of President Trump, Russia and Saudi Arabia will lead a virtual meeting of select oil producing countries in hopes of setting new production quotas which and raising the price of oil on the open market. They will be meeting under the auspices of OPEC+, which is comprised of the OPEC cartel countries plus Russia, Mexico, Kazakhstan and some other oil producing nations that have partnered together for oil policy over the last few years. The United States is not a part of OPEC+, but it seems that Russia, Saudi Arabia and partner countries are setting the U.S. at the center of their meeting and preparing for it to take the blame if the meeting fails.

The U.S. produces more oil than any other country in the world right now, at 13 million barrels per day. Saudi Arabia is second, producing more than it ever has before at about 12 million barrels per day, and it has only been doing that for a week. While more than 100 million barrels of oil are produced in the world on any day, the U.S. is the biggest single reason for an oversupply of oil on the world market.

The U.S., unlike most of the OPEC+ countries, follows a largely free market system, and, with a few exceptions, its oil industry is and has been decentralized. Hundreds of companies operate and pump oil in the U.S., and each makes its own decisions. In fact, it is generally illegal in the U.S. for oil companies to collude to set oil production policy or, worse yet, pricing.

But the OPEC+ players see the massive production coming out of the U.S. and want the U.S. to cut production if they commit to doing so themselves. If they fail to reach an agreement on Thursday, the easiest scapegoat for these OPEC+ governments is the U.S. It is easy for them to lay blame on continued production out of the U.S. and to say that a deal could not be done so long as the U.S. does not commit. Trump’s administration should be prepared for this.

There is expected to be a virtual meeting of G20 energy secretaries and ministers on Friday, which happens to be Good Friday and a holiday in much of the world. The current rotating ceremonial leadership of the G20 belongs to Saudi Arabia, which raises questions about Saudi Arabia’s role and intentions in arranging this. Also unanswered is whether the meeting will involve only producing nations—e.g. Saudi Arabia, Russia, the U.S., Mexico and Brazil—or also major importers like China, Japan and India, among others. In any case, there is talk of using the meeting to coordinate production cuts among large non-OPEC+ oil producers, but it is really unclear what the U.S. government can practically do on that front without legal and political pushback from some domestic oil companies. Don’t expect Russia, Saudi Arabia or others to understand or care that the White House can’t force production cuts at the whim of a ruler, like they can.