DUBAI/WASHINGTON/LONDON: A day before US President Donald Trump withdrewfrom the Iran nuclear deal, one of his senior officials phoned Saudi Arabiato ask the world’s largest oil exporter to help keep prices stable if thedecision disrupted supply.
Riyadh, Tehran’s arch rival, has long been a close Washington ally, butdirect pressure on a member of Organization of the Petroleum ExportingCountries (OPEC) over oil policies is rare. Washington last pressed SaudiArabia to increase output in 2012.
Riyadh has said that even though prices have spiked to over $80 per barrel,the highest since 2014, the market has yet to recover from a long slump.Until the phone call, Saudi officials had been saying it was too early toraise output.
Riyadh took this line partly because higher crude prices could help thestock market float of a stake in state oil giant Saudi Aramco expected totake place in 2019, Saudi industry sources had told Reuters.
So there was shock among some of Saudi Arabia’s fellow OPEC members when itissued a supportive statement hours after Washington imposed new sanctionson Tehran. It said it was ready to raise output to offset any supplyshortage.
Three sources familiar with the matter said a senior US administrationofficial had called Saudi Crown Prince Mohammed bin Salman before Trump’sannouncement to make sure Washington could count on Riyadh, the de factoOPEC leader.
One of the sources said the call took place on May 7. The other two did notspecify a date for the call.
Washington was worried that the sanctions would curb deliveries from Iranand push oil prices up, the sources said.
A White House spokesperson declined to comment on whether a call took place.
A senior Saudi official did not confirm the call but said: “We were madeaware of the decision on the JCPOA (Joint Comprehensive Plan of Action)before the announcement…We always have conversations with the US aboutthe stability of the oil market.”
The Saudi statement in May threatened to undermine a deal between OPEC andits allies led by Russia to curb output by about 1.8 million barrels perday (bpd), starting from January 2017, to reduce a supply glut and boostprices. The deal is due to expire at the end of 2018.
OPEC will meet on June 22 and needs a consensus of all members toofficially change its output policy. Iran’s oil minister, Bijan Zanganeh,said last week he did not agree on the potential need to increase globaloil supplies.
An OPEC source familiar with Saudi thinking said that Riyadh and Washingtonhad discussed their oil policies before the US announcement on Iran.
“You need to work with your partners in dealing with any potential effecton supply,” that OPEC source said.Allies ‘upset’
The sudden shift in Riyadh’s public position came as a surprise to its Gulfallies, who coordinate OPEC policies closely.
Some Gulf countries were “upset that there was no prior consultation withthem”, a separate source said. They felt Riyadh had come under pressurefrom Washington and they had not been consulted before public comments bySaudi Energy Minister Khalid al-Falih.
Falih traveled to Russia’s economic forum in St Petersburg last month andsaid the kingdom was prepared to gradually ease oil output curbs to calmconsumers’ worries.
The shift has also irked some producers outside the Gulf.
“Some people felt they were not properly consulted before the comments inSt. Petersburg,” a second OPEC source said.
Since the original international sanctions were lifted in January 2016,Iran has struggled to raise production above 4 million barrels per day.This is due to a lack of new projects.
Iran would benefit less than Saudi Arabia from an increase in supplies ifit cannot raise output, as well as receive a lower price for existingproduction.
A third OPEC source said it would be against the OPEC charter to raiseoutput just because Washington had requested it. “For some OPEC members,this is too much,” the source said.More pressure
US reliance on Saudi crude imports has decreased in recent years, in partas domestic shale output has risen, but Saudi Arabia remains an importantsource of US supply.
The US imported 748,000 bpd from Saudi Arabia in March 2018, having reacheda post-1970s peak of more than 2 million bpd during 2003, according tofigures from the US Energy Information Administration.
Reuters reported in late May that OPEC and its allies could raiseproduction by about 1 million bpd from July to address any potential oilshortages.
The sources say Riyadh’s shift in stance was prompted by pressure byWashington and other consuming countries but does not reflect concern inSaudi Arabia that there is a supply deficit.
In late April, Trump in a tweet criticized OPEC for high oil prices. Indiaand China also raised concerns about high oil prices in separate calls withFalih.
“The thinking before was to continue with the OPEC deal until the end ofthe year,” a fourth OPEC source said. “But then Trump and the Iran nucleardeal happened and consuming nations started to complain. Consumers are veryimportant for us.”