President Trump’s tweets demanding that OPEC step in and “do something” to halt the inexorable rally in oil prices (i.e. pump more) have been notably ineffective, as crude has continued to push through highs not seen since late 2014. And after the president took some time off from the July 4 holiday to again demand that OPEC turn up the pumps (after Saudi Arabia poured cold water on its “promise” to pump an extra 2 million barrels a day), Iran – which has the most to lose from an increase in Saudi production – is now begging Trump to stop tweeting, arguing that his tweets are only serving to drive prices higher.
The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!
— Donald J. Trump (@realDonaldTrump) July 4, 2018
According to Bloomberg, Iran’s OPEC governor Hossein Kazempour Ardebili issued a message to Trump, carried by the Iranian oil ministry’s news service, begging him to stop tweeting at OPEC and claiming that the tweets are “discrediting” the organization. “Your tweets have driven the prices up by at least $10 a barrel,” Kazempour said. “Pls stop it, otherwise it will go ever higher!”
“You are hammering on good guys in OPEC,” Kazempour said. “You are actually discrediting them and undermining their sovereignty, we expect you to be more polite.”
Iran’s #OPEC governor Hossein Kazempour Ardebili says #Trump tweets have already pushed up #oil prices by $10, says “he must stop this method”. #Iran #realDonaldTrump pic.twitter.com/ExOEzQXDvi
— Press TV (@PressTV) July 5, 2018
Kazempour also accused Trump of being a hypocrite by sanctioning OPEC members then trying to boss the organization around.
“OPEC has not defined oil prices for the past 30 years,” Kazempour said. “You impose sanctions on major producers, founders of OPEC, and yet you are asking them to reduce the prices?! Since when did you start ordering OPEC!”
Come to think of it, the Iranian is right: after all the biggest driver behind the recent oil spike has little to do with structural supply and demand, but rather with Trump’s latest Iran oil embargo, which the US is rushing to shove down allies’ throats.
Which also means that Trump himself could easily reverse much if not all of the recent spike in prices by simply agreeing to the Iran deal and refusing to reimpose sanctions on Iran and lift sanctions on Venezuela. Though that likely wouldn’t go over well with his base (not to mention Republicans in Congress).
But there’s another reason why Iran probably wants Trump to stop: Iran has an interest in Saudi Arabia keeping production as low as possible as sanctions kick in and Iran searches for buyers for its crude, which no longer can be paid for in dollars. And while Iran is likely sharing in the economic boost from higher oil and gas prices, the reality is that Trump’s tweets have had only a muted impact on gas and oil prices, as Goldman Sachs (and most other banks) see supply risks surrounding Venezuela and Iran as the primary culprit.
But that likely won’t stop Trump from accusing OPEC of being “up to something” when he needs a political whipping boy as higher prices at the pump squeeze American consumers and threaten to undo the economic benefit from the Trump tax cuts.
To be sure, while Saudi Arabia has the capacity, pushing production to the limit would likely only briefly arrest the climb in prices while using up the buffer with which OPEC can respond to supply outages – meaning that any future outages would likely have an outsized impact.
Unless of course, there is a sharp drop in global oil demand, which could well happen if the economic slowdown in China accelerates, or if the PBOC is afraid to cut rates – as it will have to to prompt growth – over fears it is seen as trade war retaliation.
That said, Iran probably has the most to lose should Trump succeed in striking a deal with the Saudis: Not only is Trump trying to blame OPEC for a problem that he helped create, any agreement between the president and Iran would likely result in more market share going to the Saudis – Iran’s geopolitical archrival – while lower prices would rob the Iranian economy of what little benefit it has received from the rally. Finally, while Saudi Arabia will pay lip service to Trump, it would never boost production by so much it splinters OPEC as everyone still remembers what happened in November 2014 when Saudi Arabia decided to go it alone, promptly sending the price of oil crashing from $70 to as low as $20.
So, in summary, don’t expect either Trump or Iran to stop jawboning any time soon.
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