This week in Trumponomics: Still dependent on foreign oil

Rick Newman
Senior Columnist

This biggest story in Trumpland of late is the barbaric alleged murder of Saudi journalist Jamal Khashoggi, who was reportedly assassinated and dismembered by a team of Saudi operatives in Turkey on Oct. 2.

President Trump started out talking tough, threatening “severe punishment,” should evidence point to Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman. And the evidence increasingly makes it look like a state-sponsored murder. But Trump has now gone soft, suggesting he might let Salman and other Saudi leaders off the hook.

The unstated reason: oil. New hydrofracturing technology has made the United States the world’s top producer of oil, and left the United States far less dependent on producers in the Middle East and elsewhere. But that’s not the same as oil independence. And the Khashoggi murder is highlighting the uncomfortable degree to which the U.S. remains reliant on despotic governments that just happen to control oil.

At any other time, Trump might be freer to get tough with Saudi Arabia. But it turns out Trump has reimposed sanctions on Iran, related to its nuclear program, that go into effect on Nov. 4. That’s two days before the U.S. midterm elections.

Those sanctions will probably remove at least 1 million barrels of oil per day from world markets, putting upward pressure on prices. Saudi Arabia is one of the countries the United States is leaning on to produce more oil, to make up for the lost Iranian supply. But Saudi Arabia has threatened to slash oil production—pushing up prices—if the United States sanctions the kingdom for executing Khashoggi.

It seems to have worked. Trump softened his tone on Saudi Arabia following the Saudi threat, as if contemplating the trouble he’d face if gasoline prices soared right before the midterm elections. It’s disappointing to see a president who wants to be known for his toughness backing down on such a blatant human-rights matter, for short-term, economic reasons. This week’s Trump-o-meter reads WEAK, our third-lowest reading.

Source: Yahoo Finance

To be fair, Trump could redeem himself with decisive action indicating American intolerance for political murders, even if it comes after the midterm elections. Khashoggi was a Saudi citizen, as Trump has pointed out, but he lived in the United States, not far from the White House, and he wrote on contract for the Washington Post. That’s more than enough to justify a tough U.S. response.

Middle East experts doubt Saudi Arabia would curtail oil production to punish the United States for criticizing its actions. A cutback would hurt the Saudi economy and create powerful incentives for nations everywhere to find alternatives to Saudi oil, whether other sources of carbon energy or greener alternatives. So Trump may have more leverage than he realizes to dictate terms to the Saudis, instead of the other way around. The Saudis may also try to buy their way out of the problem, through even greater purchases of U.S. weapons systems than they’ve promised to buy so far.

The Khashoggi calamity, and Trump’s halting response to it, comes as Russian strongman Vladimir Putin proclaims that American dominance of world affairs is ending, due in part to its own mistakes. Trump now has a chance to dispel that view. Or validate it.

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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman