On April 13, President Donald Trump took to Twitter to celebrate that the Organization of the Petroleum Exporting Countries (OPEC) and its non-member state allies, known collectively as OPEC+, agreed to cut global oil production in an effort to stabilize the shaky global energy market. The US and global economies have teetered on the edge of recession since normal commerce has been drastically curtailed in an effort to stem the spread of the novel coronavirus; however, a rift between de facto OPEC+ leader Saudi Arabia and Russia led to an increase in oil production and the slashing of petrol prices, precipitating the dive of energy markets. The resulting fight over production has proved disastrous for US energy producers and it prompted congressional Republicans to introduce punitive measures on Riyadh if it did not do its part to relax oil output.
Since at least mid-March, Republicans in both the House and Senate have exerted pressure directly and indirectly on Saudi Arabia in order to convince Riyadh to rethink its oil production output. Thirteen Senate Republicans sent a letter to Crown Prince Mohammed bin Salman on March 16 and, on April 8, nearly 50 of their House GOP colleagues followed suit. Republican Senators Kevin Cramer (North Dakota) and Dan Sullivan (Alaska) have been adamant critics of Saudi Arabia’s oil production policy. Writing not only to the kingdom’s crown prince but also to Trump Administration officials, they demanded that the administration step in to confront what Republicans of oil-producing states called “economic warfare against the United States.” The duo, perhaps frustrated with Saudi Arabia’s obstinance, took the remarkable step of introducing legislation to withdraw US troops from Saudi Arabian territory. The US presence is important to the government in Riyadh, which views it as a significant way to deter its regional rival, Iran, from targeting the kingdom for reprisals resulting from Washington’s “maximum pressure” campaign on Tehran.
Finally, after congressional pressure, engagement by President Trump, Secretary of State Mike Pompeo, and a special energy representative, and a tense two-hour phone call between Republican senators and the kingdom’s energy and defense officials, Saudi Arabia agreed to implement production cuts. This is alongside the rest of OPEC+ and in concurrence with non-OPEC+ states Brazil, Canada, Norway, and the United States agreeing to separate but coordinated production cuts.
Despite what seemingly appears to be good news, there is reason to worry that the agreement will not fundamentally translate into a positive outcome for the administration. First, the overall agreement includes a commitment from the United States to cut oil production by 300,000 barrels per day in addition to the large projected drop of production due to a global decrease in demand. This will have a disastrous effect on small energy producers, some of whom have already warned of massive job losses in oil-producing states. Furthermore, the crisis in energy markets could lead to a consolidation of producers that could see a rise in an oligopoly in the shale oil industry and the bankruptcy of small businesses.
Domestically, all of this will hurt citizens across the country, but it will be acute in a few states that are crucial to President Trump’s reelection bid as well as for Senate Republicans’ efforts to maintain or grow their majority. While the states that might be hardest hit are heavily Republican (e.g., North Dakota or Oklahoma), some states could potentially be in play for Democrats come November if local oil-based economies collapse. Texas is a prime example: it is crucial for any Republican presidential candidate’s path to the White House, but it has been trending in the Democratic Party’s favor in recent elections. President Trump only won the state by nine percentage points in 2016 and Senator Ted Cruz (R-Texas) only eked out his Senate reelection bid by just under three points in 2018. This November, the ballot includes President Trump as well as the state’s other senator, John Cornyn (R). An economy that is already hampered by the federal response to the COVID-19 crisis would hurt any president, but a broadly struggling economy would be worse if critically important states suffer even more due to Saudi Arabia’s decisions to manipulate oil prices.
In places like Montana, Alaska, and Louisiana, an unexpected economic fallout could hypothetically undermine President Trump’s path to reelection (all three went for Trump in 2016), and their Senate races could also be surprisingly close. The three currently have Democratic statewide office holders or have had Democrats in statewide office in the last five years, so it is not impossible that voters there might choose the presumptive Democratic Party nominee, former Vice President Joe Biden, or new senators, in November. Then there are other states with strong energy economies like Colorado and New Mexico that have voted for Democrats in recent years. President Trump lost both states in 2016 and, this year, there are senate elections in the two states. Senator Cory Gardner (R-Colorado) is among the most vulnerable incumbents in the country and a struggling economy could spell doom for his reelection efforts. New Mexico has largely belonged to Democrats but President Trump has targeted the state for his reelection. An ailing economy would do him no favors, however.
While the Saudi-led OPEC+ agreement gave life to the energy markets, experts suspect that it is not enough to fundamentally alter the state of the global energy economy and that oil prices will continue to negatively affect an already faltering economy. However, Saudi Arabia’s primacy at the forefront of this fight means that voters will have to grapple with Washington’s submissiveness toward Riyadh’s energy dominance, despite President Trump’s frequent boasts of US supremacy in energy production. If voters associate a poor economy with the president’s ability to lead, then the Saudi-led oil cuts could prove detrimental to the president’s reelection—and that of many Republicans running for office in November.
Also Happening This Week in Washington
I. Executive Branch
1) Department of Defense
Secretary Esper, General Milley Discuss US Presence in Middle East During the Pandemic. Secretary of Defense Mark Esper and General Mark Milley, the chairman of the Joint Chiefs of Staff, held a virtual town hall meeting with Pentagon personnel and their families this week to discuss the United States’ military posture at a time when the world is struggling to confront a pandemic. Though their remarks on the Arab world were limited, Milley did note that as of now, US troops from the Army’s 82nd Airborne Division are in limbo because the threats of COVID-19 and Iran prompted the Pentagon to leave the unit deployed in Iraq. Milley said that top brass at the Pentagon are monitoring developments in Iraq but also explained that there are threats still emanating from Iran; therefore, the 82nd Airborne is expected to remain in place to serve as a deterrent against potential attacks. This focus on deterrence was the theme with which Secretary Esper and Gen. Milley concluded, with both elaborating about the United States’ continuing preparedness at this trying time and how the Department of Defense maintains all its capacities to respond to any challenges or threats globally.
2) Department of State
Secretary Pompeo Speaks with Israel’s Netanyahu. On April 8, Secretary Pompeo spoke with Israeli Prime Minister Benjamin Netanyahu as the latter seeks both another term as prime minister and relief from legal proceedings. According to the State Department’s readout, the two spoke about the need to continue the fight against the COVID-19 pandemic and Iran’s destabilizing behavior in the Middle East.
Hezbollah Accuses US Ambassador of Meddling in Banque du Liban Affairs. The United States has found itself taking the rare step of publicly denying a charge leveled against it by Hezbollah and its allies: interfering in Lebanon’s internal politics. Hassan Fadlallah, one of Hezbollah’s members of parliament, accused US Ambassador to Lebanon Dorothy Shea of endorsing candidates for one of the four vacant positions of vice-governor of Banque du Liban (BDL), Lebanon’s central banking authority. The fight comes as Hezbollah tries to position itself to control the vice-governor seats so it can exert power over BDL without appearing to lead the bank it its entirety.
As the sides engage in this war of words, the United States also continued to mount financial pressure on Hezbollah and its partners in Lebanon, all while the country’s feeble economy continues to bend under the combination of US sanctions and chronic elite mismanagement and corruption. Just this week the State Department offered up to $10 million in rewards for information that helps disrupt Hezbollah’s financial networks, specifically those associated with or benefitting Muhammad Kawtharani, a senior leader of Hezbollah’s forces in Iraq.
State Department Commends OPCW for Investigation into Syrian Chemical Weapons Attacks. This week the State Department issued a statement of support for the Organization for the Prohibition of Chemical Weapons (OPCW). The report, released on April 8, was the first from the OPCW’s Investigation and Identification Team (IIT), which is mandated “to establish the facts behind incidents involving the use or likely use of chemical weapons in Syria for which the OPCW-United Nations Joint Investigative Mechanism did not reach a final conclusion.” The IIT concludes that the regime of Bashar al-Assad carried out chlorine and sarin gas attacks in Ltamenah, Syria on March 24, 25, and 30, 2017.
The State Department also organized a phone call briefing with two senior State Department officials to outline the US response to the OPCW report. One official expressed support for it because it reinforces the United States’ assessment that chemical weapons attacks, despite what propaganda efforts assert, were carried out by the Assad regime and with the knowledge of the “highest levels of the regime.” It is noteworthy to see Trump Administration officials embracing the findings of an international organization since President Trump, Secretary of State Pompeo, and others have been extremely critical of a number of international entities. Secretary Pompeo routinely rails against the UN Human Rights Council, the International Criminal Court, and others for their findings and statements against US partners like Israel. This is clearly part of a broader theme for the administration; similar to human rights issues in the past, it is difficult to ignore that Secretary Pompeo and his team at the State Department only uplift international findings that paint US adversaries in a negative light while deriding others that do not correlate with the administration’s vision of the world.
State Department Speaks Out in Support of Developments in Sudan, Iraq, and Yemen. The last week has brought to light several crucial, yet still fragile, achievements of great importance to the Middle East. First, Iraq’s political class put forth a supposed consensus candidate to form the next government in Baghdad, and the State Department spoke out favorably about the development that “Shia, Sunni, and Kurdish political leaders seem to have arrived at a consensus on government formation.” Perhaps Baghdad’s new prime minister, Mustafa al-Kadhimi, is truly a consensus pick; after all, he did navigate the fractious nature of domestic internal politics to go on to receive warm welcomes by both Washington and Tehran, the primary external actors with influence in Iraq. It is important that Kadhimi has received early support, but he has monumental tasks ahead and will have to continue to manage Baghdad’s internal politics while also balancing the interests of Iran and the United States.
In addition to the developments in Iraq, Sudan’s revolution turned one year old this week and the United States joined the United Kingdom and Norway (the “Troika”) in expressing support for the fledgling transitional government that has been running Khartoum’s affairs. The three countries applauded both the political alliance, Forces for Freedom and Change, and the Transitional Military Council for the achievements they have made in the year since the uprisings toppled longtime dictator Omar al-Bashir. Khartoum has made serious efforts to mend its relationship with Washington, so it is crucial that the United States and its partners in the Troika continue to support Khartoum at this crucial but vulnerable juncture.
Finally, peace is potentially in the offing for Yemen, a country that has been mired in a conventional war with Saudi Arabia and its coalition allies for five years but that also experienced years of civil war beforehand. This week, the Saudi-led coalition that is fighting Yemen’s Houthi rebels announced a two-week unilateral cease-fire—a move that some suspect is Riyadh’s first step at trying to extricate itself from what has been a military failure. The State Department applauded the coalition’s decision, citing the need to upend the spread of COVID-19, and it called on the Houthis to respond in kind. This development, no doubt, is good news for the countless numbers of Yemeni civilians who have suffered under years of bombardment. However, although the Saudi-led coalition announced a cease fire, the Houthis remained suspicious of Riyadh’s motives and have failed to commit to applying a cease-fire to the domestic Yemeni forces that remain loyal to the Saudi-backed government. In addition, it is unclear at this moment whether Saudi Arabia is willing to concede anything substantive enough for the Houthi rebels to agree to lay down arms.
Assistant Secretary Schenker Provides Update on Iraq and the Broader Middle East. On April 9, Assistant Secretary of State for the Bureau of Near Eastern Affairs David Schenker held a press briefing to discuss developments in Iraq and, more generally, the Middle East. Schenker largely reiterated State Department talking points about Iraq’s efforts at forming a new government and he expressed Washington’s desire to see Baghdad remain united and stable.
Aside from Iraq, Schenker answered questions about Yemen and Lebanon. On the former, Schenker reiterated that the United States wants to help Yemen by providing aid but that the administration is refusing to allow aid to Houthi-controlled areas. Though Houthi corruption has been a major problem, cutting US aid to Yemen could have dire consequences. On Lebanon, Schenker also denied the report (see above) of Washington’s meddling in the affairs of Lebanon’s Banque du Liban. He expressed limited backing for Beirut’s efforts to stabilize the economy but stated that the United States does not support its request for help from the International Monetary Fund because, along with administration officials, he does not think enough substantive reforms have been undertaken.
3) Department of the Treasury
Turkey Approaches US about a Potential “Fed Swap.” As it barrels towards a pandemic-induced economic recession, Turkey has approached the US Treasury Department about securing what is called a “swap line” from the US Federal Reserve, Washington’s central bank. In such a swap, Turkey would sell “a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate.” Neither the United States nor Turkey have indicated such a deal is imminent, but Ankara is struggling to maintain its economic health as the spread of the coronavirus strains what was already a faltering economy.