What Trump’s Threat to Saudi Arabia Actually Means

So, Donald Trump is threatening to block oil imports from Saudi Arabia, according to Forbes. Why would he do this? He says its to help the US achieve energy independence. The problem with that argument is that the US now only imports about 11% of its oil from Saudi Arabia, about a fourth of what we get from Canada and a little more than we import from Mexico. It won’t make a huge dent in our oil situation.  Still, the threat could produce an artificial oil shortage in the US, which would make American oil refiners pay more for crude oil on the world market.

Who benefits from this artificial shortage? Not you and me. It will make gasoline prices go up. Understanding this sort of move generally makes gas go up involves understanding how oil price and geopolitics intersect.

Vladimir Putin benefits a great deal. World oil prices, set by the “Brent” future contract, determine how much money Russia gets for its oil. As you can see from today’s Brent, the threat seems to have caused a $2 per BBL spike in the Brent. As a result, every one of Russian’s 10 million barrels a day that it pumps just become worth $2 more per barrel – a  gain of $20,000,000 per day.

If you subscribe to the theory that Donald Trump wants to help his friend Putin, this would be a good way to do it. He is causing turmoil in the oil markets and a potential shortage in the US. And, it will enrich Putin’s treasury, and, if you believe what you read, it will enrich Putin personally. The question is whether or not Trump realizes what is going on?  Who is suggesting that he make this threat? It would be interesting to know.brent-11-17-16

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