Inside Saudi Arabia’s Decision to Launch an Oil-Price War

Riyadh prepares emergency budget for $12-20 a barrel oil; “It’s all about egos now.”

Saudi Arabia and Russia intensified an escalating oil-market war on Tuesday, with Riyadh set to raise output to record levels and Moscow saying it was ready to pump more crude.

State-run Saudi Arabian Oil Co. said it would boost production to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity.

Russian Energy Minister Alexander Novak, meanwhile, said his country could rapidly open its own taps.

Oil prices lost a fifth of their value Monday, after Saudi Arabia over the weekend slashed its crude prices and signaled it would boost its output next month. The move followed Russia’s rejection of a Saudi-backed plan by the Organization of the Petroleum Exporting Countries to cut crude output in response to dwindling demand in China and elsewhere.

Even as the price war escalated with fresh salvos from both sides, former Saudi energy minister Khalid al-Falih was in talks with Mr. Novak in an attempt to reverse the production hikes and revive the collective OPEC-Russia output curbs, according to Saudi-government advisers and officials.

Mr. Falih, who negotiated the initial production cuts in 2016, is now Saudi Arabia’s minister of investments. His outreach to Mr. Novak is done with the approval of Saudi authorities, the advisers said. If Mr. Falih’s mediation succeeds, the advisers and officials said, OPEC and its allies including Russia will convene an emergency meeting in April.

Mr. Novak said Moscow isn’t ruling out further cooperation with OPEC, adding that the next scheduled meeting is planned for May or June.

“The doors are not closed,” he said.

Amid the escalating fight, President Trump called Saudi Crown Prince Mohammad bin Salman on Monday to discuss global energy markets, the White House said Tuesday morning. The leaders also discussed “other critical regional and bilateral issues,” according to a statement.

Global GlutOil prices have fallen as demand from China has slowed and Saudi Arabia haspledged to pump more.

Saudi Arabia and Russia’s decisions to flood markets are surprising, as China—the world’s largest oil importer—has been hobbled by the deadly coronavirus, which has hurt its demand for oil after refineries and factories were forced to shut.

Saudi Arabia’s struggle for oil-market supremacy might earn it a sliver of market share at the expense of Russia and rival U.S. shale producers, but the cost of a price war might be too much for the kingdom to bear, analysts and oil officials say.

The combination of declining global consumption and rising supply pushed Brent crude, the benchmark for global prices, to its sharpest decline since the first Gulf War in 1991 on Monday. Some of these losses were recouped Tuesday as the Brent oil price gained 8% amid a broader revival in markets.

Saudi Arabia’s aggressive discounts are targeting some of Russia’s core markets in China and Northern Europe. The kingdom is also taking aim at U.S. oil producers, Saudi and OPEC officials said.

The Russian energy minister declined to comment and the Saudi energy minister didn’t respond to a request for comment.

Some oil officials say theystruggle to see the logic behind Saudi Arabia’s decisions. Others see the battle as tied to Prince Mohammed’s recent efforts to tighten his grip on power and raise his international clout, according to people involved in the OPEC talks.

Russia’s failure to find common ground with Saudi Arabia and OPEC on oil cuts was preceded by talks in early February between Riyadh and Moscow that focused on the possibility of forging a broader, long-term alliance. Under one scenario, Saudi Arabia would have sped up its investments inside sanctions-hit Russia and backed the Kremlin’s military efforts in Syria, according to people familiar with the matter.

Ultimately, the crown prince didn’t commit to a deal, say the people familiar with the matter, because he didn’t want to alienate the U.S. Weeks later, roughly at the same time that Russia was refusing to endorse the Saudi-backed plan to cut oil output, Mr. Putin was initiating a rapprochement with Turkey, a Saudi foe, the people said.

“It’s all about egos now, not about the oil market,” said a Saudi-government adviser.

Meanwhile, Prince Mohammed saw the OPEC debate as a way to assert his broad influence over the kingdom’s oil policies and to prove to his older brother, Saudi energy minister Prince Abdulaziz bin Salman, that he could force Russia’s hand, according to people familiar with his thinking.

In a terse phone call to Prince Abdulaziz late Thursday, the crown prince overruled his brother, who had agreed to a three-month production cut with OPEC, and extended the proposed cuts through the end of the year, these people said.

Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, on Thursday.

PHOTO: CHRISTIAN BRUNA/SHUTTERSTOCK

The crown prince ordered the minister to force OPEC to adopt the decision—even if that meant risking any hope that Russia would join in, they said.

Now the kingdom is pursuing a strategy of undercutting its rivals by drowning markets with cheaper oil—a move that has a tendency to backfire, say longtime market watchers.

On Saturday, the Saudi energy ministry told Aramco officials that instead of cutting production, they should pump more oil and lower the price. Saudi Arabia soon spread the word throughout the market. “It was the Saudi declaration of war against Putin,” said a senior Saudi official.

Within hours, officials at the finance ministry were tasked with preparing a budget scenario that envisions benchmark Brent crude prices dropping into a $12-$20 a barrel range. All Saudi ministries were also asked to cut their spending significantly to prepare for this scenario.

But the strategy has backfired before.

In 2014, then-Saudi oil minister Ali al-Naimi persuaded OPEC to pump at will to compete with U.S. shale producers. His rationale was that the cartel’s members had the ability to produce at extremely low costs. But after the price of Brent crude fell below $28 a barrel in early 2016, the Saudi royal family fired him. His successor, Mr. Falih, negotiated a pact between OPEC and Russia to cut production in the first OPEC+ deal. Within months, oil prices more than doubled.

The move to depress prices also missed its mark in the 1980s and led to a period known in oil circles as the “Lost Decade.” In 1986, OPEC faced competition from rising North Sea production. Saudi Arabia’s delegation was so upset about OPEC members flouting the group’s production agreements that it unleashed a flood of oil that sank prices for a prolonged period.

Eventually, Saudi Arabia backtracked and cut production, but the move wasn’t a complete failure, as it helped score a political victory against the Soviet Union. Riyadh had been backing insurgents battling Russia in Afghanistan—many of whom would later found al Qaeda. As the oil price fell to around $30 a barrel, Russia faced a budget crisis that contributed to food shortages and an end to its war in Afghanistan. Its then-leader Mikhail Gorbachev retreated from Kabul and launched the restructuring of Russia under his perestroika policy.

Russia is better prepared to weather low oil prices than in the past. Oil is now accounts for less than a third of budget revenue. The country has also accumulated massive reserves. The Russian finance ministry said Monday that it could withstand 10 years of prices at $25 to $30 a barrel.

Still, some Russian producers say the oil-market war is excessive.

“I’m in shock. This is a very unexpected, irrational decision to put it mildly,” Leonid Fedun, vice president of Russian private producer Lukoil was reported as telling Russian newspaper the Bell. Russian oil companies would like to increase production, he said, but that won’t make up for losses from falling prices.

The mood is more somber in Saudi Arabia, which needs oil prices over $60 a barrel to balance its budget, according to Saudi officials. The kingdom is now contending with its own coronavirus outbreak, moving Monday to suspend all air travel with many of its neighbors.

Saudi Arabia’s national oil company Aramco fell about 7% to 27.95 riyals ($7.45) a share on the Saudi domestic exchange Monday. The Saudi price decrease has “literally burned all global energy investors,” said a Saudi official. “[Saudi Aramco] Won’t sell a share to foreigners again,” he said, referring to the Crown Prince’s plan to list Aramco internationally.

Amazon boss Jeff Bezos’s phone ‘hacked by Saudi crown prince’

Exclusive: investigation suggests Washington Post owner was targeted five months before murder of Jamal Khashoggi

The Amazon billionaire Jeff Bezos had his mobile phone “hacked” in 2018 after receiving a WhatsApp message that had apparently been sent from the personal account of the crown prince of Saudi Arabia, sources have told the Guardian.

The encrypted message from the number used by Mohammed bin Salman is believed to have included a malicious file that infiltrated the phone of the world’s richest man, according to the results of a digital forensic analysis.

This analysis found it “highly probable” that the intrusion into the phone was triggered by an infected video file sent from the account of the Saudi heir to Bezos, the owner of the Washington Post.

The two men had been having a seemingly friendly WhatsApp exchange when, on 1 May of that year, the unsolicited file was sent, according to sources who spoke to the Guardian on the condition of anonymity.

Large amounts of data were exfiltrated from Bezos’s phone within hours, according to a person familiar with the matter. The Guardian has no knowledge of what was taken from the phone or how it was used.

The extraordinary revelation that the future king of Saudi Arabia may have had a personal involvement in the targeting of the American founder of Amazon will send shockwaves from Wall Street to Silicon Valley.

It could also undermine efforts by “MBS” – as the crown prince is known – to lure more western investors to Saudi Arabia, where he has vowed to economically transform the kingdom even as he has overseen a crackdown on his critics and rivals.

The disclosure is likely to raise difficult questions for the kingdom about the circumstances around how US tabloid the National Enquirer came to publish intimate details about Bezos’s private life – including text messages – nine months later.

It may also lead to renewed scrutiny about what the crown prince and his inner circle were doing in the months prior to the murder of Jamal Khashoggi, the Washington Post journalist who was killed in October 2018 – five months after the alleged “hack” of the newspaper’s owner.

Mohammed bin Salman
 Mohammed bin Salman. One observer said the alleged targeting of Bezos reflected the ‘personality-based’ environment in which the crown prince operates. Photograph: Bandar Aljaloud/Saudi royal court/EPA

Saudi Arabia has previously denied it targeted Bezos’s phone, and has insisted the murder of Khashoggi was the result of a “rogue operation”. In December, a Saudi court convicted eight people of involvement in the murder after a secret trial that was criticised as a sham by human rights experts.

Digital forensic experts started examining Bezos’s phone following the publication last January by the National Enquirer of intimate details about his private life.

The story, which included his involvement in an extramarital relationship, set off a race by his security team to uncover how the CEO’s private texts were obtained by the supermarket tabloid, which was owned by American Media Inc (AMI).

While AMI insisted it was tipped off about the affair by the estranged brother of Bezos’s girlfriend, the investigation by the billionaire’s own team found with “high confidence” that the Saudis had managed to “access” Bezos’s phone and had “gained private information” about him.

Bezos’s head of security, Gavin de Beckerwrote in the Daily Beast last March he had provided details of his investigation to law enforcement officials, but did not publicly reveal any information on how the Saudis accessed the phone.

He also described “the close relationship” the Saudi crown prince had developed with David Pecker, the chief executive of the company that owned the Enquirer, in the months before the Bezos story was published. De Becker did not respond to calls and messages from the Guardian.

The Guardian understands a forensic analysis of Bezos’s phone, and the indications that the “hack” began within an infected file from the crown prince’s account, has been reviewed by Agnès Callamard, the UN special rapporteur who investigates extrajudicial killings. It is understood that it is considered credible enough for investigators to be considering a formal approach to Saudi Arabia to ask for an explanation.

Callamard, whose own investigation into the murder of Khashoggi found “credible evidence” the crown prince and other senior Saudi officials were responsible for the killing, confirmed to the Guardian she was still pursuing “several leads” into the murder, but declined to comment on the alleged Bezos link.

When asked by the Guardian whether she would challenge Saudi Arabia about the new “hacking” allegation, Callamard said she followed all UN protocols that require investigators to alert governments about forthcoming public allegations.

Saudi experts – dissidents and analysts – told the Guardian they believed Bezos was probably targeted because of his ownership of the Post and its coverage of Saudi Arabia. Khashoggi’s critical columns about Mohammed bin Salman and his campaign of repression against activists and intellectuals rankled the crown prince and his inner circle.

Andrew Miller, a Middle East expert who served on the national security council under President Obama, said if Bezos had been targeted by the crown prince, it reflected the “personality-based” environment in which the crown prince operates.

“He probably believed that if he got something on Bezos it could shape coverage of Saudi Arabia in the Post. It is clear that the Saudis have no real boundaries or limits in terms of what they are prepared to do in order to protect and advance MBS, whether it is going after the head of one of the largest companies in the world or a dissident who is on their own.”

The possibility that the head of one of America’s leading companies was targeted by Saudi Arabia could pose a dilemma for the White House.

Trump and his son-in-law Jared Kushner have maintained close ties with the crown prince despite a US intelligence finding – reportedly with a medium–to–high degree of certainty – that Mohammed bin Salman ordered Khashoggi’s murder.

Both Saudi Arabia and AMI have denied that the kingdom was involved in the publication of the Bezos story.

A lawyer for Bezos who was contacted by the Guardian said: “I have no comment on this except to say that Mr Bezos is cooperating with investigations.”

The Guardian asked the Saudi embassy in Washington about the claims. It did not immediately return a request for comment.

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Iran Accuses U.S. of Framing it for Tanker Sabotage to Provoke Conflict

Iran accused officials in the Trump administration and its Middle East allies of attempting to frame it for an attack on oil tankers near a strategic Persian Gulf waterway.

Iranian Foreign Minister Javad Zarif on Tuesday said “some radical individuals inside the U.S. administration and the region” were pursuing “dangerous policies” in an attempt to pull the Americans into a military conflict with Iran.

“We had predicted that some would want to escalate tension in the region by some actions,” Mr. Zarif said in New Delhi after a meeting with his Indian counterpart Sushma Swaraj.

.. “Spreading “fake intelligence” should alert everybody to what we call the B-team’s mal-intentions toward the region and the stability of the Persian Gulf,” Mr. Miryousefi said.

Iranian officials often use the term “B-team” for a quartet of people they say are trying to stoke conflict with Iran: White House Security Adviser

  • John Bolton, Israeli Prime Minister
  • Benjamin Netanyahu, Saudi Crown Prince
  • Mohammed bin Salman and Emirati Crown Prince
  • Mohammed bin Zayed.

The White House has yet to directly blame Iran for the attack, but President Trump said Monday that, “If [the Iranians] do anything, they will suffer greatly.”

.. While Tehran has lashed out against the Trump administration for ditching the accord, it also spent weeks trying to de-escalate tensions by staying in the deal along with the other parties.

Even some U.S. officials acknowledge a reluctance from Iran to ratchet up tensions. In late April, one week after Washington said it would not renew waivers to Iran’s oil customers. A U.S. official said its military intelligence showed that the Iranian Navy had not changed its behavior in the Persian Gulf despite threats to close down the strait if Tehran itself was unable to use it.

Meanwhile, Iranian officials such as Mr. Zarif have warned that some officials in the U.S., alongside Saudi Arabia and Israel, might try to lure Iran into a military confrontation.

“There are worries about suspicious actions and sabotages in the region, and we have predicted them before,” Mr. Zarif said. He has previously said he doesn’t believe President Trump wants a war with Iran.

.. Saudi Arabia halted pumping on a major oil pipeline after two pipeline boosters were attacked by drones, the kingdom’s energy minister Khalid al-Falih said in a statement.

.. Saudi and U.S. officials accuse Iran of providing the Houthis with training and designs to build their drones. Tehran denies the charges.

.. The U.S. ambassador to Saudi Arabia, meanwhile, appeared to temper tensions after the attacks on the tankers.

“We need to do a thorough investigation to understand what happened, why it happened, and then come up with reasonable responses short of war,” Ambassador John Abizaid told reporters in the Saudi capital Riyadh on Monday.

“It’s not in (Iran’s) interest, it’s not in our interest, it’s not in Saudi Arabia’s interest to have a conflict,” he said.