Following a dispute with Russia at the most recent OPEC meeting, Saudi Arabia’s Crown Prince Mohammad bin Salman decided to increase oil production dramatically, sending prices plummeting. Coupled with cratering demand resulting from the coronavirus pandemic, this move could prove fatal to the U.S. shale-oil industry. John Hannah and Varsha Koduvayur urge Washington to pressure Riyadh to reverse course:
Whether laying waste to a strategic sector of the U.S. economy was a factor in Mohammad bin Salman’s decision, it will almost certainly be one of the results. Overnight, he put at risk tens of thousands of high-paying American jobs and struck a potentially mortal blow against a resurrected oil sector that has become a critical asset in Washington’s efforts to constrain oil-rich adversaries in such places as Iran and Venezuela. Once the shale industry is lost in an avalanche of defaults, bankruptcies, and abandoned wells, the risks are high that the costs of bringing the industry back in the foreseeable future could be prohibitive.
It’s important that the United States see the Saudi decision for the irresponsible and unfriendly act that it was. . . . It may be ironic that the United States, after decades of criticizing the Saudis for keeping prices too high, is now attacking Riyadh for driving prices too low. But it’s worth recalling the fundamental bargain that rests at the core of the U.S.-Saudi relationship. In exchange for America’s underwriting its security, the kingdom pledged to provide access to its oil at reasonable prices.
People may quibble over the meaning of “reasonable.” But in a world in which the U.S. military remains the one force standing between Saudi Arabia and a rapacious Iran, Washington is within its rights to inveigh against any Saudi oil strategy that undermines the foundations of U.S. economic power and national security—regardless of whether the Saudi strategy leads to prices that are too high or too low.
Read more on Foreign Policy: https://foreignpolicy.com/2020/04/02/deal-to-stop-saudis-from-drowning-u-s-shale-oil/