Trumps Wants to Cut Ties with Saudi Oil

Trumps Wants to Cut Ties with Saudi Oil

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    Trump and Saudi Arabia - alvexo

    U.S. President-elect Donald Trump has ruffled feathers around the world with his words and actions, but his latest comments could put the global oil economy in turmoil. According to repeated statements by Trump, he plans to block all oil exports from Saudi Arabia, the world’s largest oil exporter.

    Trump’s Remarks

    Although the U.S. has been working to develop its shale oil recently and has become the third largest global crude oil producer, it still relies heavily on Saudi Arabia for crude imports. Saudi Arabia is the largest Middle Eastern oil supplier to the U.S. and is also very involved in U.S. refineries to control supply.

    Suadi Oil and Trump

    However, throughout his campaign, Trump pledged to bring the U.S. to energy independence from “our foes and the oil cartels,” while also creating “complete American energy independence.” Trump’s repeated remarks largely refer to OPEC, of which Saudi Arabia is the largest producer and default leader.

    According to Trump, he will block imports unless Saudi Arabia and other Arab countries commit ground troops to fight ISIS or reimburse the U.S. for its efforts in fighting terror, both of which seem like very unlikely scenarios.

    Trump’s plan could create an oil shortage in the U.S. and lead to a shake-up in the global market. The U.S. could, in theory, rely on its large domestic oil supplies and its trading relationship with Canada, which provides a large portion of the country’s oil.

    “We needed oil desperately years ago,” Trump said in March. “Today, because of new technologies…there’s a tremendous glut on the market.”

    >Saudi Response

    Saudi officials have been pointed in their response, but also note that they are waiting for Trump to officially take office to see which of his numerous lofty statements and so-called promises actually come to fruition.

    Saudi Arabians were initially happy with Trump’s victory after this disappointment with President Obama’s actions, especially regarding the U.S.’s relationship with Iran, but those feelings may have changed after Trump’s repeated remarks regarding oil trade.

    Saudi government officials have noted that Trump is an accomplished businessman who knows how to make a deal, which could be good for future negotiations. However, Saudi Arabia’s oil minister, Khalid Al-Falih, said he believes Trump will see the benefits of Saudi oil exports and realize that blocking exports could be disastrous for the global oil economy.

    “The U.S. is sort of the flag-bearer for capitalism and free markets,” Al-Falih said. “The U.S. continues to be a very important part of a global industry that is interconnected, that is dealing with a fungible commodity which is crude oil. So having equalization through free trade is very healthy for oil.”

    Al-Falah About Oil - alvexo

    Being dropped by the U.S. could hurt the Saudi economy. Although Saudi Arabia still dominates the global oil scene, it has been hit hard in recent years. Oil prices are now around $40 per barrel, a huge drop from $115 per barrel in summer 2014, which means the country is running record budget deficits for 2016 and expected in 2017.

    Oil is a huge business in Saudi Arabia, which means the slowdown has been felt in other areas, including austerity measures throughout the country. If the U.S. were to block Saudi oil exports, it could spell disaster for the country.

    Today’s global oil market is incredibly interconnected, which means the U.S. blocking Saudi imports could have effects for a number of other countries. The U.S. has long been committed to open energy markets, but Trump’s plan would go against that. So far, no other countries have officially come out against Trump’s plan.

    A lot of questions remain about what a Trump presidency will actually look like, so how the oil industry and the U.S.’s relationship with Saudi Arabia will evolve is yet to be seen. The stage is set for an industry turn in the global oil market.

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