Oil barely garnered a mention from U.S. President Donald Trump during his glitzy visit to Saudi Arabia this week. But the black gold may explain why the trip went so smoothly.
Trump lavished praise on Saudi Crown Prince Mohammed bin Salman, known as MbS, in his speech on Tuesday at an investment summit in Riyadh as the Kingdom unveiled a $600 billion package for investment in the United States and Trump touted a $142 billion defence deal.
Yet there was no public mention of the main thing that has tied the two countries together over the past century: oil.
For decades, Washington and Riyadh have nurtured close ties based on Saudi Arabia’s pivotal role in the oil market and America’s strategic interests in the Middle East. This translated into hundreds of billions of dollars of military and economic support for Saudi Arabia over the years.
For decades, Saudi Arabia was a major supplier of crude oil to the United States, with imports peaking at 2.2 million barrels per day in 2003, according to data from the Energy Information Administration. But with the surge in domestic U.S. oil production in the Gulf of Mexico and onshore shale basins in recent decades, Saudi exports gradually slid to around 275,000 bpd in 2024, less than 1.5% of total U.S. consumption.
The decline in American dependence on Saudi petroleum had caused some U.S. politicians to question the alliance, including Trump’s predecessor Joe Biden, who sought to make Saudi Arabia a pariah over the country’s human rights record.
But Trump used the first major overseas trip of his second term to send a clear message about the U.S. commitment to this partnership.
The Kingdom, in turn, may have helped ensure the trip’s success by taking steps beforehand to help lower oil prices, right as the president was facing scrutiny over his tariff policies.
PRIMING THE PUMP
Saudi Arabia remains hugely influential in setting global oil prices through its iron-fisted leadership of the Organization of the Petroleum Exporting Countries, the cartel of producers founded in 1960 that today controls around 40% of global crude supplies. That influence was expanded in 2016 when OPEC formed an alliance with Russia and other producing nations known as OPEC+.
Trump clearly recognizes this power. He called for OPEC to boost output in order to keep U.S. gasoline prices down days after taking office.
Wanting to rein in energy prices is normal for any U.S. president, but it became doubly important for Trump after his tariff sweep of April 2 launched the United States into a trade war that risks increasing consumer prices.
Given this backdrop, it’s notable that Saudi Arabia recently made a dramatic shift in policy, pushing OPEC+ to increase oil output sharply into a market that was already well supplied, even as the demand outlook was tanking due to Trump’s trade war.
The group’s decision to boost output by 411,000 bpd in May and again in June helped send oil prices tumbling to around $60 a barrel in early May from $82 a barrel at the start of the year. Prices are currently at around $66 a barrel.
The timing of these supply increases was a bit head-scratching. But they make a lot more sense if the Saudis were seeking, at least in part, to give Trump a hand as he sought to pursue his ambitious economic and geopolitical agenda.
First, falling energy prices could help minimize any inflationary impact from Trump’s tariffs and support economic activity at a time when U.S. consumers and businesses are on edge.
Additionally, lower oil prices could support Trump’s efforts to mediate an end to the war in Ukraine. Plummeting energy prices put pressure on Russia, which is heavily reliant on oil and gas revenue.
Trump recently indicated as much. “I think Russia, with the price of oil right now – oil has gone down – we are in a good position to settle, they want to settle,” the president said on May 5.
Riyadh’s decision to add more oil into a well-stocked market could also help offset any oil lost through sanctions on Iran and Venezuela, which the Trump administration ratcheted up in recent months.
To be sure, Saudi Arabia’s decision to launch what amounts to an oil price war has been driven by several considerations, most notably the wish to punish OPEC+ members for failing to comply with production quotas and the Kingdom’s desire to regain market share.
But pursuing a price war at a time when there could be many forces suppressing demand is a questionable strategy.
So why take this step now? Potentially because any short-term pain will be worth it if it enables MbS to gain significant political capital with the U.S. that can help him advance his 2030 vision to diversify Saudi’s economy and receive generous military support.
Trump’s landmark visit to Saudi Arabia, therefore, may have had everything to do with oil, even if the topic never seemed to come up.
Source: Reuters