THE global energy chess board continues to spring surprises.

Saudi Arabia, the defacto leader of the Organisation of the Petroleum Exporting Countries (Opec), made a surprise announcement last Monday, saying it would cut its output further, by one million barrels per day (bpd) from June, ‘voluntarily’. This took the total Saudi production cuts from April to 4.8m bpd, slashing its total production to 7.5m bpd, down almost 39 per cent from its April output of 12m bpd.

While announcing the additional cut, Saudi Arabia said it wanted to expedite draining the global supply glut and to rebalance the oil market. The Saudi state media reported that the Saudi Energy Ministry has in the meantime, directed Saudi Aramco, the national oil company, to “seek to reduce” production during May as well “in consent with its customers.”

Saudi Arabia also urged fellow Opec members and their partners outside the cartel to cut deeper into their oil production to speed up the rebalancing of the oil markets, Reuters reported.

Taking the cue, other leading members of the Opec followed the suit. Gulf Opec producers the United Arab Emirates and Kuwait joined Saudi Arabia pledging additional cuts for their June output by a combined 180,000 bpd.

The total output cut is huge and unprecedented. Oil prices reacted to the move, going up the next day. But the blip proved to be temporary. Oil pared some gains, as fears of a potential resurgence in global coronavirus cases countered the bullish sentiments.

What made Saudi Arabia take this sharp ‘U-turn’?

The voluntary cut is in sharp contrast to the Saudi position taken hardly a couple of months back, when on March 6, it announced opening its taps to capacity, as Russia declined to cut its output further. A battle ensued between the two global crude giants, Russia and Saudi Arabia, decimating the markets in literal terms, as prices dipped into the negative territory.

Indeed economics and the desperate need to generate additional cash compelled Riyadh to take some bitter decisions and sharp ‘U-turns.’ But there seem other reasons too. One can’t avoid connecting the dotted lines, here.

Only the week before the Saudi decision to ‘voluntary’ cut its output further, the United States had announced pulling out two Patriot missile batteries, guarding Saudi oil facilities. Associated Press, quoting an American official, said disagreement over oil production led to the US decision. The anonymous source also told the AP that the US would also pull out 300 US troops staffing the missile batteries.

The missiles were flown out to Saudi Arabia and installed at Prince Sultan airbase, outside Riyadh, in the immediate aftermath of the missile attack on Abqaiq and Khurais – two of the kingdom’s most crucial oil sites. Houthi rebels claimed the attack, yet both Washington and Riyadh pointed fingers at Tehran.

The US announcement could be seen in the background of US President Donald Trump’s statement (just before the announcement to pull out the patriot missiles) that his administration was “doing some things” and “making a lot of moves in the Middle East and elsewhere. We’re doing a lot of things all over the world militarily. We’ve been taken advantage of all over the world, our military.”

“Saudi Arabia is a very wealthy country and they’ve agreed to help defray some of the costs, which nobody else would ever ask for,” the US president said, adding that “if we’re going to defend countries, they should also respect us by making a contribution.”

There have also been some hints that Washington was looking at the possibility of easing restrictions on Iran, Saudi Arabia’s arch-foe.

And the pressure is not only Saudi Arabia. The United Arab Emirates is also under focus. Late April, the world’s anti-money-laundering watchdog, the Financial Action Task Force (FATF) in a report warned that the UAE must take increased measures to counter money laundering or risk inclusion on the FATF watch list. The report warned, if the UAE fails to take action to plug the loopholes in its system, within one year, it could be placed on FAFT’s so-called “grey list” of 18 states.

The pressure is growing while President Trump is endeavouring, in an election year, to bail out the shale energy sector and protect the jobs of hundreds of thousands involved in the sector.

After all Trump can’t afford losing support in the country’s energy belt, the Republican hinterland.

Indeed oil goes hand in hand with politics!

Published in Dawn, May 17th, 2020