The big question is, where is the quid pro quo? There has always been a lurking suspicion that Putin had a game plan while triggering the fall in oil price in such a contrived fashion that resulted in the loss of billions of dollars of income for the Russian economy.
by M.K. Bhadrakumar
A
perfect deal is where all protagonists get something out of it. All
oil-producing countries stand to gain if the oil price rebounds. In bare bones,
the OPEC+ group led by Saudi Arabia and Russia finalized, in a nail-biting
photo finish on April 12, an agreement to steeply cut oil production
by a combined 9.7 million barrels per day (bpd) for May and June to rebalance
the supply and demand in the world market and nudge the prices to go up amid
the coronavirus pandemic.
It
capped days-long tortuous international negotiations that also included the
United States. Additional cuts are expected from producers outside the OPEC+
group. Experts anticipate that by the second half of the year, oil prices would be nearing $40 per barrel.
The
world’s oil producers are joining together for the largest cooperative
production initiative in history. The tectonic plates are shifting in the
geopolitics of oil.
Historically,
the U.S. rallied against the oil cartel as a threat to the American economy.
However, not only has Washington joined the latest production program, but the
success of that program may actually hinge on the U.S., where oil production
has doubled in a single decade.
U.S.
President Donald Trump has held direct talks in recent days with the heads of
Russia, Saudi Arabia, and Mexico. Although the U.S., the world’s largest
producer, has not offered firm production cuts, Trump and the U.S. Energy
Department have emphasized that market forces will bring U.S. declines.
That
is to say, cuts can come from government action via corporate decisions, as
companies either shut-in production or file for bankruptcy. The estimates are
that the U.S. production is projected to fall by 2 million barrels per day
by the end of this year and perhaps more. “According to industry figures,
the U.S.’s drop in output could see exports shrinking from over 3 million bpd
in 2019 to almost [zero] in the coming months, removing a key concern for both
Russia and the Saudis amid fears of a U.S. takeover of their traditional
markets.”
This
meets with the declared twin objectives of Saudi Arabia—to defend its market
share and also to kill if not slow down U.S. shale oil production. The
alternative for Saudis would have been to regain market share at enormous cost
by producing enough oil to keep prices in the low to mid $20s and sustain that
for two years.
As
for Russia, thanks to the deal, it will receive an extra $70-80 million in
revenues per day.
Trump
tweeted on April 12, “The big
Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy
jobs in the United States. I would like to thank and congratulate President
Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the
Oval Office. Great deal for all!”
Having
said that, at its core, OPEC+ deal stems from a matrix of understanding between
Trump and Putin. Saudi Arabia understood that it had better stay out of their
way. Putin sized up accurately how important it is politically for Trump to
keep the shale industry afloat to preserve jobs. The industry employs over 10
million Americans and accounts for 7 percent of the U.S.’s GDP.
The
big question is, where is the quid pro quo? There has always been a lurking
suspicion that Putin had a game plan while triggering the fall in oil price in
such a contrived fashion that resulted in the loss of billions of dollars of
income for the Russian economy.
Quite
obviously, the free fall of oil price precipitated an existential crisis for the U.S. shale industry
in an election year in America that sooner rather than later was bound to bring
Trump onto the center stage. Whether Putin choreographed it or not, that was
exactly what happened.
As
for Trump, a constructive engagement with Russia is something he wanted all
along. Three precious years have been lost due to the Mueller investigations
on “Russia collusion” and so on. But after successfully outmaneuvering his
opponents in the impeachment drama, Trump is now unbound. Putin understands
that, too.
In
this particular affair, Trump is salvaging the interests of Big Oil,
which carries enormous clout with the political class,
think tanks, the media and Wall Street—and, of course, the “Deep State.” Simply
put, it is inconceivable today that anyone in the Washington Beltway, however
Russophobic, would dare to protest against Trump negotiating one-on-one with
Putin to salvage Big Oil.
There
is a broad consensus among the American elite that Putin holds the key to
unlocking the oil crisis that can severely damage the U.S. economy when it is
already heading into a deep recession.
In
fact, between April 10 and 13, Trump and Putin spoke to each other three times.
Trump knows he is on the right side of history and his interlocutor can be
trusted to keep his word. Trump’s tweet on April 12 (quoted above) drips with
confidence. He is striding toward a detente with Russia.
On
the other hand, with an eye on the U.S. election cycle, Putin’s interest lies
in wrapping up a big picture deal with Trump on Russian-American relations as
quickly as possible because a potential Joe Biden victory in November could
mean that the U.S. doubles down on Russia.
Putin
has set a September timeline. He has proposed the idea—and Trump has welcomed
it—of a summit meeting of the permanent members of the UN Security Council in
September “in any place in the world”
to discuss global issues in the wake of the coronavirus pandemic.
Interestingly,
on April 10, even as the OPEC+ deal was being finalized, Putin utilized a
session with two three-member crews of U.S. and Russian astronauts (with one
majority-Russian crew taking over the International Space Station from the
other majority-American crew on April 17) to touch on Russian-American
relations.
Putin said
the cooperation in space “is a vivid example of an effective partnership
between our countries for the benefit of the entire humanity.” He then added,
“We are now also trying to organize work on current problems. I do not like
speaking about this but I have to. I mean the fight against the pandemic, as
well as the situation in the global markets. The President of the United States
and I discussed these issues just yesterday, and we will speak more on that
topic. So, fortunately, cooperation is developing, and not only in space but
also in other areas.”
Most
significantly, a Kremlin statement on the
conversation between the two leaders two days later, on April 12, said that
“Current issues of ensuring strategic security were also discussed.” The agenda
of discussion has broadened and deepened dramatically.
Meanwhile,
China is also positioning itself for the summit in September. Moscow consulted
Beijing before making the proposal for the summit. (Putin acknowledged
that Moscow had proposed the summit to “several of our colleagues and as far as
I understand, saw a positive reaction.”) Beijing was quick on its feet to voice support
(within 24 hours) to Putin’s proposal regarding the summit to resolve global challenges.
All
in all, therefore, we should not miss the wood for the trees. The OPEC+ deal is
about much more than oil. It kickstarted a sequence of great-power cooperation
involving the U.S., Russia, and China, which would be far-reaching in the
post-pandemic world politics.
Such
convergence is a clear indicator of how the global pandemic and the global oil
crisis remain deeply entangled, and the recovery of the U.S. economy is linked
to them. “[T]he shattering impact of COVID-19”
is affecting the global oil crisis, which, as U.S. Energy Secretary Dan
Brouillette put it,
“transcends the interest of any one nation and requires a swift and decisive
response from us all.”
The
world is witnessing here the spirit of internationalism occurring, as OPEC
President Mohamed Arkab said on April 9, “in the
midst of a human tragedy on a scale perhaps not seen… [for] more than a
century. The pandemic [which
has infected more than 2 million people and killed more than
138,000 as of April 16] has reached almost every
corner of the planet.”
Author Bio:
M.K. Bhadrakumar is a former Indian diplomat.
Source: Independent Media
Institute
Credit Line:
This article was produced in partnership
by Indian Punchline and Globetrotter, a project of the
Independent Media Institute.
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