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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Trump Under Fire For Support Of Saudi-Led Coalition In Yemen

Congress is about to give President Trump a bloody nose, at least politically, over part of his Saudi Arabia policy. On Wednesday, the panel voted to cut off U.S. support for the Saudi-led coalition fighting in Yemen's bloody civil war.

However, the panel’s decision, not unsurprisingly, was split along party lines. The panel’s Democrats sent a War Powers resolution to the House floor, where it is likely to pass overwhelmingly in the coming days, a Politico reported said. A companion effort in the Senate will follow, but its prospects are less certain as Trump administration officials are ramping up efforts to discourage Republican defections.

The panel’s move comes at a politically vulnerable time for the president as he fights ongoing allegations of cooperation with Russia in the 2016 election, his insistence that a border wall will be built as another impending government shut down draws near and a litany of other issues that have both Democrats and some Republicans hemming in the president.

However, the most difficult quandary facing Trump, as far as global oil markets are concerned, is his relationship with Saudi Arabia. Unlike his predecessor, President Obama, Trump has one of the closest relationships with Riyadh since Franklin Delano Roosevelt was president. Not that it started out that way. Just after Trump was elected in November 2016, he lambasted the Saudis for not only oil market manipulation but also the fact that the U.S. has been defending the kingdom for decades while at the same time has transferred an unprecedented amount of wealth from the U.S. to Saudi coffers for oil. Related: BP Beats Estimates, Posts Highest Profit In Five Years

During his campaign, Trump vowed to secure U.S. energy independence from “our foes and the oil cartels,” while also creating “complete American energy independence." A few days after Trump was elected, Saudi Arabia's oil minister fired back. Khalid Al-Falih, also the chairman of Aramco, said in a Financial Times interview at the time that “at his heart, President-elect Trump will see the benefits [of Saudi oil imports] and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy.”

Trump’s Saudi pivot

Since then, Trump has made a pivot toward better relations with the kingdom for several reasons. First, he needs a healthy readership with Saudi Arabia as he uses his presidential bully pulpit to keep oil prices from ticking too high. It’s unlikely that Saudi Arabia would kowtow with Trump's requests last year to influence oil markets if a strong relationship wasn’t already in place.

While oil prices in the $60s plus range seem to make Trump uncomfortable, particularly heading into the 2020 election cycle, prices near the $100 per barrel price point, last seen in mid-2014, would not only ensure higher gasoline prices in the U.S., but cement a likely defeat for Trump against his Democratic challenger next year.

Trump also needs a good relationship with Saudi Arabia as a balance of power check in the middle east, the most geopolitically charged region in the world. Without a strong House of Saud ruling in Riyadh, a power vacuum would open in the middle east that would be filled by Iran - a scenario, given the Islamic Republic's rhetoric and actions to date, would no bode well for world peace. Related: Big Oil Is On A Startup Buying Spree

This is the same dilemma that U.S. presidents have faced since Jimmy Carter and the establishment of the Islamic State of Iran in 1979. A strong Saudi Arabia is the only hedge to keep Iranian regional hegemony ambitions, now along with Russian influence, in check.

Arabian Peninsula legacy

While Saudi participation in the war in neighboring Yemen has reached a humanitarian crisis level, Saudi nay-sayers and even those that oppose Trump’s close relations with Saudi Arabia fail to comprehend the geopolitical conundrum of the Arabian Peninsula. It is a history rife with jockeying for geopolitical power, land and resources, with the weight of major theological differences weighing in the background.

In 1934, two years after its founding, the Saudi fight a war with the only other independent state at the time in the Arab world - Yemen. A dispute led to a four-month-long border war as Saudi Arabia was still stretching its muscles with ambitions of controlling if not all, at least most of the Arabian Peninsula. During the war, Saudi forces defeated the Yemenis and took several border regions in the resulting peace agreement which expanded the Saudi state to the southwest. Yet, many Yemenis have never accepted the outcome of 1934 conflict as legitimate, leaving a legacy of mistrust between the two Arab neighbors.

Now, Yemen - one of the Arab world’s poorest countries, sharing a common border with Saudi Arabia, the wealthiest - sees tensions remain leading up the present Yemeni Civil War. This presents political problems for Trump and his support of Saudi Arabia, especially given Saudi Arabia’s military actions in the conflict.

For Trump, the prospect of supporting a strong, rich power fighting amid sectarian violence with its poorer Arab neighbor is a losing proposition. At the end of the day, he may be politically pragmatic by conceding to Congress and withdrawing support for Saudi involvement in Yemen, while still maintaining his close relationship with Riyadh. Both stability in the middle east and stability in global oil markets demand a strong U.S.-Saudi alliance, even if it has periods of uncertainty along the way.

By Tim Daiss for Oilprice.com

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