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Why Trump is going soft on Saudi Arabia: oil and Iran

Rick Newman
Senior Columnist

President Trump is slow-rolling any type of punishment against Saudi Arabia for the apparent murder of journalist Jamal Khashoggi. Here’s one likely reason: his options aren’t good, and some choices could actually backfire on Trump in the final days before the U.S. midterm elections.

Khashoggi, a Saudi citizen and Washington Post columnist who lived near Washington, D.C., entered the Saudi Arabian consulate in Istanbul, Turkey, on Oct. 2 and never came out. Turkish officials say Saudi operatives tortured, drugged, murdered and dismembered Khashoggi, who’s been a public critic of Saudi Arabia’s leadership, including Crown Prince Mohammed bin Salman, the kingdom’s de facto leader.

Trump initially said, “we’re going to get to the bottom of it and there will be severe punishment.” Sen. Lindsey Graham and others in Washington say the United States should  impose sanctions on Saudi Arabia and on individuals deemed to have been involved in the murder.

But severe punishment looks increasingly unlikely. Trump has now endorsed an implausible “rogue killers” theory that would absolve Saudi leaders. And he has tweeted that King Salman and Crown Prince Salman deny any involvement with Khashoggi’s death, as if he’s satisfied with their explanation and inclined to let them off the hook.

The Iran strategy

Trump may be going soft because meaningful sanctions could affect Saudi oil exports, which Trump is unusually dependent on at the moment. Saudi Arabia is an important U.S. ally not only because it’s the world’s biggest oil producer, but because it’s a staunch foe of Iran, America’s principal Middle East nemesis. Trump is set to reimpose sanctions on Iran, related to its nuclear weapons program, on Nov. 4. And to do that, he needs help from other oil producers, especially Saudi Arabia.

When the Iran sanctions go back into effect—two days before the U.S. midterm elections—Iran’s oil sales will drop by 1 million barrels per day, or more—enough to put meaningful upward pressure on oil prices. The price of West Texas crude has already risen about 18% this year, to $71 per barrel. Gasoline prices have risen in lockstep, from an average of $2.52 per gallon in January to $2.88 now.

Saudi Arabia has been pumping more oil, to help replace the Iranian crude coming off the market. That generates more oil revenue for Saudi Arabia, and keeps oil and gasoline prices stable, which helps Trump, since he won’t have to explain a sudden spike in gas prices as a consequence of his Iran policy. “The Iran sanctions are a real boon to Saudi Arabia, which wants Iran hobbled,” says Sarah Emerson, president of research firm ESAI Energy. “This is a win-win for the U.S. and Saudi Arabia, or at least their two governments.”

Gas prices in play

The Khashoggi mess, however, could disrupt Trump’s Iran strategy just as he’s about to tighten the screws on the hard-line Islamic nation. In other instances, the United States has imposed economic sanctions meant to limit commerce with U.S. firms or impede the operation of specific companies. But Saudi officials have indicated they’d respond to any such sanctions by restricting oil output and pushing oil prices to $80, $100 or higher. As the world’s ranking petroleum heavyweight, they could easily do it.

With Election Day looming, the timing is lousy for Trump. Gas prices just under $3 aren’t really a problem in a growing economy with low unemployment. But rising gas prices have a disproportionate effect on consumer psychology, and a sudden burst above $3 could bother voters. Democrats eager to exploit the issue would say Trump’s Iran policy is causing more pain at the pump, and they wouldn’t really be wrong.

Odds already favor a Democratic takeover of the House of Representatives, which would be an embarrassing reversal for Trump likely to lead to all manner of hearings and investigations into various Trump controversies. Trump’s tariffs on Chinese imports are already causing friction in key election states, and Trump is surely loath to give opponents another issue to exploit.

There are other ways the U.S. could sanction Saudi Arabia without affecting the flow of oil. The U.S. could limit or halt Saudi purchases of U.S. military equipment, although Trump has already said he doesn’t want to do anything that would interfere with American jobs or exports. The Global Magnitsky Act, passed in 2016, may be a more supple tool. It allows the U.S. government to sanction individuals involved in human rights violations, by denying them entry to the country, freezing assets here and cutting off targeted individuals from much of the global banking system.

That would be a sort of neutron sanction that leaves the flow of oil unimpeded. But Trump may not be willing to go as far as sanctioning Saudi Arabia’s top royals. His administration may now be seeking a fig-leaf outcome that makes it look like Trump is doing something, without harming relationships that are crucial to Trump’s Iran policy – or American drivers.

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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman