The Saudi-Russia oil fight is the last thing the economy needs in a pandemic

President Trump’s acknowledgement this week that “This could be a hell of a bad two weeks” was a reference to the coronavirus pandemic. Aside from the fatalities and pain, it also is going to be a very tough time for the economy.

Evidently nagging at the president’s attention is the oil price war between Saudi Arabia and Russia. At Tuesday’s news conference, he said he had spoken with Crown Prince Mohammad bin Salman and President Putin. Both men were negotiating, he claimed, and he “personally may join the talks, if needed, at the appropriate time.” He also pointed out his major concern — low oil prices may be like a huge tax cut for many, but may not be worth it if the cost is the destruction of the U.S. oil industry.

The oil price war — with both countries trying to produce as much as they can, to see which national economy can tolerate the strain on its revenues — was declared after Riyadh and Moscow failed to agree on production cuts on March 6. Such cuts probably would not have raised the already weak oil price, but they would have had the effect of only modest drops in earnings. Without going too far into economic theory, the absence of at least a loose framework for sales of a commodity such as oil can lead to wide fluctuations in price, to the detriment of consumers and producers alike.

President Trump gets this. In an interview with Fox News on March 30, he said that the oil price war is a fight between Saudi Arabia and Russia: “And they both went crazy, they both went crazy.” The language was hardly diplomatic, and probably did not go down well in Moscow or Riyadh, but it accurately sums up the origins of the crisis in the minds of many energy analysts.

Even more surprisingly, the administration is tilting toward blaming the Saudi kingdom more than Moscow. After a telephone call between Secretary of State Mike Pompeo and Prince Mohammad on March 24, a U.S. statement included the line: “The Secretary stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty.” Ouch! A further short, concluding sentence on our “partnership in the face of the Iranian regime’s destabilizing regional behavior” went unnoticed.

All this is not to say that some in the White House have not wanted to take the Saudi side in the debate. On March 31, Reuters reported that a proposal had been considered for a “U.S. alliance with Saudi Arabia to manage the global oil market.” A source said the idea of such an alternative to OPEC “has been floated, but not at a stage of something that is being seriously considered.” Other sources told Reuters that Pompeo had discussed the idea with Energy Secretary Dan Brouillette and the new national security adviser, Robert O’Brien.

Congress probably would oppose the idea, Reuters reported, but this could be used to pressure Riyadh to reduce oil output on its own.

How the oil price war eventually will play out — and when — is anyone’s guess; the story is fast-moving. Despite President Trump’s assertion that Russia and Saudi Arabia are having discussions, the Kremlin said on Wednesday that the two countries are not holding talks and there are no plans for President Putin to call the Saudi leadership.

And, in a further twist, Russia sent a planeload of virus-related medical equipment to the United States. Skepticism about its quality will likely only partially diminish the propaganda coup of the gift.

Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.