This article was published by The McAlvany Intelligence Advisor on Wednesday, April 15, 2020:

Early in the movie “Patton,” U.S. General George S. Patton – who had read Erwin Rommel’s book, Infantry Attacks – sees that, by following Rommel’s tactics, he is crushing his forces in an epic tank battle in Tunisia and exclaims Rommel, you magnificent bastard, I read your book!”

U.S. President Donald J. Trump, by following the tactics laid down in his own 1987 book “Trump: The Art of the Deal,” managed his own magnificent triumph: he ended the squabble between Saudi Arabia and Russia, brought Mexico back into the fold, and negotiated a 20 percent cut in worldwide crude oil production.

That cut likely saved the U.S. shale oil industry from collapse while securing his reelection in November. Daniel Yergin, author of The Prize: The Epic Quest for Oil, Money, and Power, applauded Trump’s success:

Of all the deals he’s done in his life, this has to be the biggest and most complex. He had to be not only dealmaker but also divorce mediator….

It took four days of intense virtual meetings and negotiations with leaders of the nations making up the cartel, plus Russia and Mexico, to get the deal done. In its final form, global production of crude oil will officially be cut by 9.7 million barrels a day starting May 1. After two months, the cut will drop to 7.7 million bpd until January, and drop further to 5.8 million bpd for another 16 months.

The real cut will approach 20 percent of world production, reflecting the fact that many oil-producing nations are already suffering cuts due to the global shutdown in response to the COVID-10/coronavirus threat.

The president tweeted:

The big Oil Deal with Plus is done. This will save hundreds of thousands of energy jobs in the United States.

 

I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!

That is rule one from his 1987 bestseller: Make sure that everyone wins, and make a big deal about it.

In Riyadh, Saudi Arabia’s Energy Minister said the agreement resurrected from oblivion: “We have demonstrated that OPEC+ is up, running, and alive. I’m more than happy.”

Mexico was brought back into the fold after seriously considering leaving the cartel in response to a resurgence of populism that recently elected its president. Initially, Mexico was asked to cut its production by 400,000 barrels per day. But when President Andrés Manuel López Obrador, commonly referred to as AMLO for his initials, balked, President Trump negotiated a compromise: you cut 100,000 bpd and we’ll cut the other 300,000.

Trump knew the desperate straits the U.S. shale industry was in. Rig counts were down by nearly a third, and thousands of workers had already been laid off. Big Oil (Chevron, Exxon Mobil, Royal Dutch Shell, and others) had already announced massive cuts to their capex budgets. If oil dropped into single digits, survival of the industry would be threatened. To say nothing of the impact such devastation would have on his reelection chances in November.

He also knew the U.S. production cuts were already coming, so he negotiated without having to apply pressure from the Oval Office to the frackers.

Trump acted as a “divorce mediator,” as noted by Yergin. In early March, after Russian delegates walked out of an meeting, Saudi’s prince MBS (Mohammed bin Salman) retaliated by turning up the spigot of Aramco, the country’s energy producer. He cut the price of crude in half to his best customers, driving the world price of crude to below $30 a barrel. Observers were predicting that the price war, if continued, would cause the price to drop to single digits.

But the marathon of calls and virtual meetings extending into all hours of the night brought the disaffected parties together. Trump offered them what they could not, or would not, obtain on their own: crude oil prices high enough to keep them from going bankrupt before the world economy recovered. Russia needs oil at $40 a barrel while the Saudis need $80 a barrel to balance their budgets.

MBS’s position was perhaps the most precarious. The sale of part of his most precious asset, Aramco, had netted him far less than the $100 billion he claims he needs to diversity his county’s economy away from its near-total dependence on oil. As a result he has seen his foreign reserves dwindle away, and has had to set up credit lines with international banking firms in order to keep his state afloat.

Ed Morse, the head of research for Citigroup, called Trump’s efforts “unprecedented”: “Unprecedented times called for unprecedented measures. Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”

The biggest winner is President Trump. As Fortune expressed it: “There has been a tectonic shift in global oil politics. Putin, MBS, and Trump – the leaders of the world’s three largest producers – now are dictating global petroleum supply.” With Trump now clearly in the driver’s seat.

In his book, Trump provided examples of his successful negotiating style. During those four harrowing days and nights (while, it should be remembered, he was also leading the attack on the COVID-19/coronavirus threat), he applied those rules in this most difficult of circumstances.

The man is indefatigable. He makes at least a dozen meetings every day and at least 50 phone calls. He starts early and works late, often taking calls up until midnight.

He has smart people advising him, but engages the leaders face to face. From his book: “When it comes to making smart decisions, the most distinguished committee working with the highest paid consultants doesn’t hold a candle to a group of guys with a reasonable amount of common sense – and a lot of money on the line.”

He had leverage but never needed to apply it. He knew that Saudi’s prince is heavily reliant on the U.S. for military assistance. He knew that the prince is fearful of tariffs on his oil exports. He knew that the prince had learned that Senator Kevin Cramer (R-N.D.) had suggested that the president cut off military aid to his country. He no doubt knew that Trump supporter and shale oil magnate Harold Hamm had recommended raising tariffs. Trump knew he knew, and didn’t have to wield them. They remained unspoken during the negotiations.

Everyone won. Including the president, who tweeted early Monday morning: “Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 million barrels a day, not the 10 million that is generally being reported. If anything near this happens, and the world gets back to business from the Covid 19 disaster, the energy industry will be strong again, far faster than currently anticipated.”

And then he offered his praise and congratulations: “Thank you to all of those who worked with me on getting this very big business back on track, in particular Russia and Saudi Arabia.”

By following his own rules set out in his own book, Trump pulled off a trifecta: settling the divorce, getting massive cuts in crude oil production from 23 countries, and saving the U.S. oil industry from disaster. In the process, he strengthened greatly his chances for a resounding reelection victory in November.

—————————

Sources:

Quote from Patton: “Rommel, You Magnificent Bastard. I Read Your Book!”

The book Patton read: Infantry Attacks, by Erwin Rommel

The Epoch TimesOil Expert: Trump Seals His ‘Biggest and Most Complex Deal’

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