By: Oil price

The Biden presidency was not the best of times for U.S.-Saudi relations. After Biden declared Saudi Arabia a pariah state and signaled a commitment to the energy transition, the fate of the bilateral relations was more or less sealed. Now, with Trump, this may well change. Because the U.S. and Saudi have common oil interests.

On the face of it, the United States and Saudi Arabia are rivals in the oil space, and the U.S. has played a lead role in Saudi’s loss of clout over international prices with its record-high production. But, according to Reuters columnist Yawen Chan, both countries would benefit from Trump’s stated intention to step up pressure on Iran, targeting its oil industry with stronger sanctions.

These sanctions would limit the availability of Iranian crude on international markets, Chan argued in a recent column, ultimately shrinking global supply and boosting prices. This is something that both U.S. oil producers and Aramco need, Chan notes. For U.S. producers, it’s rising breakeven levels that necessitate the higher prices. For Aramco, it’s Crown Prince Mohammed’s ambitious economic diversification plans that have pushed the state budget breakeven to $100 per barrel of oil. In short, both America and Saudi Arabia need higher oil prices. To get them, Trump could slap new oil sanctions on Iran.

Yet, there is a problem with this scenario. The problem lies in the fact that most oil traders share an unshakeable conviction that oil demand is weak and getting weaker by the hour because China is not importing crude at post-lockdown rates. Besides, stronger U.S. sanction action against Tehran is pretty much a given, so any price reaction to Trump’s foreign policy would be muted.