U.S. Sanctions On Iran Could Impact How Trump Responds To Killing Of Jamal Khashoggi
ARI SHAPIRO, HOST:
More than a million barrels a day of crude oil have been taken off the global market thanks to the Trump administration's decision to sanction Iranian oil exports. The White House is looking to Saudi Arabia to help replace that lost oil, which means it's relying on the Saudis just as their country is implicated in an international scandal. NPR's Jackie Northam reports.
JACKIE NORTHAM, BYLINE: The U.S. sanctions are intended to take Iranian oil exports off the global market. The administration is even warning that countries that import Iranian oil could face stiff penalties. That's causing concern about where they will get their crude in the future. Jeff Schott is with the Peterson Institute for International Economics.
JEFF SCHOTT: And so as the United States officials went around the world arguing that countries should stop buying oil from Iran, they had to, as part of their argument, ensure those countries that there wouldn't be an oil shock and that prices would go up and those countries would be disadvantaged.
NORTHAM: In an effort to prevent an oil shock, the Trump administration is allowing several countries to continue buying oil from Iran for at least the next six months. And it's continuing to pressure other oil-producing countries to make up the shortfall. And that's where Saudi Arabia comes in.
CLIFF KUPCHAN: Saudi is the main country the U.S. has looked towards because only Saudi has significant spare capacity.
NORTHAM: Cliff Kupchan is the chairman of Eurasia Group, a political risk consultancy company. He says Saudi Arabia is the only country that can easily ramp up oil production, adding an extra half a million barrels a day in short order, more over the long term.
The administration felt confident Saudi crude could help avoid a disruption in the global oil market after the Iranian sanctions took hold. But that was before the death of journalist Jamal Khashoggi in a Saudi Consulate in Istanbul.
Kupchan says now the Trump administration is under enormous pressure to penalize the Saudi government for its role in Khashoggi's death.
KUPCHAN: The Khashoggi incident makes the geopolitics of this episode more complicated. The issue we're going to see unfolding is sending an appropriate message that this is unacceptable without being so harsh as to offend the Saudis to the point where they say, to heck with this. We're cutting production. That's really the tightrope that we're walking here.
NORTHAM: President Trump has threatened the Saudi government with severe punishment if its leaders ordered Khashoggi's death, raising the specter of retaliation. Saudi Arabia has used oil as a weapon before during the 1970s oil embargo.
But Rachel Ziemba, an adjunct fellow at the Center for a New American Security, says the Saudi government supports the Trump administration's tough stand on Iran and could use the bump in revenues from increased production.
RACHEL ZIEMBA: My view is that the Saudis are unlikely to use that oil weapon because their focus is so much on being a stable provider of fuel to the global economy. Now, they might provide it in smaller volumes or are more delayed. And they do it in less coordination with the United States.
NORTHAM: Either way, the Peterson Institute's Schott says he's not sure it's a good idea for the U.S. to rely too much on Saudi Arabia's spare production capacity to make up for the Iran shortfall. He says right now, supply and demand are balanced, but...
SCHOTT: What happens if there is another emergency that takes significant amount of oil off the market? Then we could have a different situation and a sharp spike in oil prices.
NORTHAM: So even Saudi oil can't guarantee that prices won't rise. Jackie Northam, NPR News.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.