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Oil price war hurts U.S. most

Russia President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.
Russia President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.

On the surface, the oil price war disrupting the global economy pits the world’s third-largest producer, Russia, against the second, Saudi Arabia. However, the ultimate loser — and a probable intended target — is the world’s No. 1 crude producer, the United States.

After years of stewing over his country’s loss of market share to the burgeoning U.S. shale industry, and the sanctions Washington has put on Russia’s oil industry in response to Moscow’s various abuses in international affairs, President Vladimir Putin has decided to fight back, in the form of unrestrained production that threatens to bankrupt many highly indebted U.S. companies.

The backstory to Putin’s move is a stagnation in global consumption that has turned into an outright downturn due to the novel coronavirus. As de facto chief of OPEC, Saudi Arabia tried to persuade Putin to cut its production in tandem with the cartel, so as to prop up prices for them all. When Putin refused, Saudi Crown Prince Mohammed bin Salman countered by declaring his country would run its industry at maximum output for the foreseeable future. So far, Russia has not bowed to the pressure, partly because Moscow can balance its budget at a much lower price of oil than Saudi Arabia can, and partly because Putin smells an opportunity to get even with the United States. ...

President Trump’s immediate response to all of this was to celebrate lower prices at the gas pump, which does indeed amount to a tax cut for U.S. consumers. The problem is that what the United States may gain in consumer purchasing power it will lose in financial-system instability, as the oil patch’s problems spread to their creditors and stockholders on Wall Street. There may be a double-edged impact on the climate, too, since greenhouse-gas emissions go up due to extra consumption of cheaper oil — and go down when production falls in U.S. oil fields. The United States is on both sides of the world’s biggest tradeoff, both economically and environmentally. A tax on carbon would enable us to control climate risks no matter which way the markets move.

In geopolitical terms, Trump should be absorbing the lesson that Russia’s president is not a U.S. friend, actual or potential, but rather a despot willing to play hardball against this country’s vital interests. The Saudi crown prince, too, has shown himself to be an unreliable player on the international stage, putting the U.S. economy at risk when it suits him, despite the vast military assistance, and lavish rhetorical support, the Trump administration has given his brutal regime. At a time when the world needs to pull together in the face of a global public health threat, these two men are destabilizing it for their own selfish ends.

The Washington Post

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