Saudi Arabia: Message to Trump

Published on January 7, 2020

Saudi deputy defense minister Prince Khaled bin Salman, the former Saudi ambassador to the US, swept into Washington yesterday for a series of urgent meetings with US Secretary of State Mike Pompeo, Defense Secretary Mike Esper, and late yesterday, with President Donald Trump, attended by White House special advisor Jared Kushner and National Security Advisor Robert O’Brien.

Before departing to London for meetings with UK officials, it is our understanding that Prince Khaled brought with him four key messages from his full brother, Crown Prince Mohammed bin Salman:

*** Saudi Arabia will increase its oil exports “as needed” to keep crude oil prices from a sustained rise above $70 a barrel, in effect, capping Brent oil prices that had spiked to $70.74 per barrel before falling back below $68 today. The Saudi official is believed to have asked the President to refrain from tweeting on oil prices to make it politically easier for the Saudis to adjust their production to temper oil price spikes, while stressing all bets are off on higher oil prices if a shooting war breaks out in the Gulf. ***

*** Saudi Arabia has been engaged for several months in backchannel negotiations with Iran via Iraqi officials, including acting Prime Minister Adil Abdul-Mahdi, to defuse the tensions between the two Mideast rival powers. This foreign policy “recalibration” has been underway in the wake of the Abqaiq missile attack, in large part, to protect Saudi domestic economic reforms, including a planned international tranche of the Saudi Aramco IPO later this year. ***

*** Reflecting its concerns over the fragility of the Baghdad government and the risk of a renewed sectarian civil war on its northern border, Riyadh is pressing the Trump Administration to keep its military forces in Iraq and is promising to use its influence and money to press the Iraqi government to refrain from formally demanding the withdrawal of the US military presence. The Kingdom may even foot some of the bill for the US military bases. ***

*** At the same time, the Saudis also conveyed their unease with the US using military facilities in the Kingdom for further strikes against Iran. While not flatly refusing US access, the Saudis share the concerns behind the moves by Qatar – which hosts the US Al Udeid air base from which the drone strike on Baghad airport was launched — and Kuwait — which has publicly declared it did not request the recent arrival of the US 82nd Airborne troops — to distance themselves from any further US strikes. ***

Saudi Oil Output Capacity

Current Saudi oil output is averaging just over ten million barrels per day and, on paper, has an additional 2 million bpd of spare capacity, though how sustained maxing out its capacity is open to debate. But adding to its near-term muscle is the recent deal struck with Kuwait to restart the roughly 500,000 bpd capacity of the Neutral Zone that has been shut in for several years.

Saudi oil minister Prince Abdul Aziz al-Salman, half-brother to the Crown Prince who recently replaced Khaled al-Faleh as oil minister, engineered a fairly tough agreement in December to extend its 1.2 million bpd production cuts to June this year, with a crucial March meeting of the Joint Ministerial Monitoring Committee to recommend whether to keep to the production limits or to let them lapse by summer.

The Kingdom has vowed to stick to its quota, but its key OPEC+ ally, Russia, has barely trimmed its oil output, if at all, and its oil companies have made little secret of their desire to end the agreement and to maximize export sales and market share, especially after the winter season ends.

We understand the Saudis are likewise keen to gain market share but to limit any sustained rise in oil prices, much less a war-driven spike, for fear of its impact on global demand, which is still only slowly recovering. But more to the message delivered in the White House meeting, Saudi Arabia was keen to reassure the US officials they will expand their capacity “as needed” to prevent prices from rising on a sustained basis above $70 a barrel.

In addition, the Saudis have at least 150 million barrels of crude stockpiled in their domestic Strategic Petroleum Reserve and additional inventories held abroad if hostilities should break out in a wider regional confrontation; but the point stressed was that all bets would be off on the scale of oil price spikes if there is a shooting war in the region.

We also understand the Saudis have reached out to the Russians, their OPEC+ ally, to make the case to the Iranians for a “tolerable” retaliation for the Soleimani killing, namely, one that does not include Saudi energy infrastructure targets that could widen into a full-blown regional war.

That overture could become a factor in how the Kingdom weighs whether to extend the current OPEC agreement or to let it lapse. It is likewise effectively offering Moscow an opportunity to extend its influence in the Mideast even further than it already has in recent years as the merging global powerbroker in the region and in the energy market.

Backchannels to Iran via Iraq

The most sensitive part of the Saudi messaging to President Trump and the US officials was around the reported mission of Iran’s Islamic Revolutionary Guard Corps Quds Force commander Major-General Qasem Soleimani, who was killed in a US drone strike soon after his commercial flight landed at Baghdad international airport.

The Iraqi prime minister Adil Abdul-Mahdi fumed that Soleimani came to Baghdad on his request to hear a briefing he intended to personally give to the powerful Iranian official on the overtures being made by Saudi Arabia to defuse tensions between the two embittered rival regional powers.

Saudi officials have publicly avoided any comment on why Soleimani was in Baghdad, nor for that matter, have they even acknowledged the backchannel overtures with Iran. But it is our understanding Riyadh has been “recalibrating” its regional policies in the wake of the missile attack on the Abqaiq and the Ghawar oil facilities last September.

In addition to a halt to its bombing campaign in Yemen, we understand Riyadh had conveyed feelers on steps to defuse tensions with Iran via messages to Tehran via the Iraqi Prime Minister, and Soleimani was indeed invited to Baghdad by the Iraqi Prime Minister to give an Iranian response to the Saudi feelers.

US Secretary of State Pompeo was dismissive of the Iraqi assertion, but he carefully worded his response to reporter questions asserting that Soleimani “was not there representing some type of agreement that was going to reduce risk or reduce the risk of lives of Americans while he was on that trip.”

That is potentially, even likely, to be true, at least not on this trip, and Soleimani had in fact met with the leadership of various Shia militias in Iraq, including Abu Mahdi al-Muhandis, head of the Iranian-backed Kataib Hezbollah militia, and with tribal leaders in eastern Syria, in recent weeks. Soleimani is assumed to have given guidance if not a green light to the escalating string of Shia militia attacks in Iraq on US military assets and personnel in December that culminated in a US contractor being killed.

The US launched missile attacks across Shia controlled regions of Iraq in retaliation on December 29, which in turn, led to the Shia militia-organized storming of the US embassy inside the Green Zone. President Trump’s decision to authorize a US military drone killing of Soleimani, who was known to be arriving in Baghdad, was purportedly driven by the scenes of the embattled embassy.

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