By Timothy Puko in Washington and Christopher M. Matthews in Houston
The Trump administration is turning toward the most well-worn
pages of its global playbook -- tariffs and threats -- as it tries
to stop an oil-price war from crippling dozens of U.S.
companies.
In conversations with oil-company executives and lawmakers,
President Trump has suggested tariffs on imported oil, possibly
using the same trade law it used against China, according to people
familiar with the matter. The tactic is aimed at leveraging U.S.
power to get Saudi Arabia and Russia to reduce a flood of crude
swamping the market.
The Saudi-led Organization of the Petroleum Exporting Countries
and allied nations including Russia are set to hold a
videoconference Thursday to negotiate an accord on production
cuts.
The U.S. contends market forces will curb production. It is
resisting pressure to mandate cuts for its oil producers, and isn't
planning to have a representative participate, the people said.
"I would use tariffs, if I had to," Mr. Trump said at a White
House briefing Sunday. "I don't think I'm going to have to."
The people cautioned that Mr. Trump could abandon the idea of
tariffs if a deal is struck or if crude prices -- down about 60%
for the year -- otherwise rebound. They had bounced back strongly
last week as the Trump administration touted a potential deal
between Moscow and Riyadh, but heavy losses Monday and Tuesday
erased nearly all of those gains.
Tariffs are the likely contingency plan if the trouble persists,
the people said, and just threatening them is a way for Mr. Trump
to find leverage in a diplomatic push.
"Tariffs are one of the president's favorite tools, and he's got
a lot of authority over them," said Sen. Kevin Cramer (R., N.D.),
who has consulted with the president on the oil crisis.
The people familiar said the administration was considering
using Section 301 of the 1974 Trade Act, which it used to impose
tariffs on Chinese imports. The act gives the president broad
powers to initiate a trade case against unfair foreign barriers to
U.S. exports and enact tariffs if a settlement can't be
reached.
Harold Hamm, executive chairman of shale-driller Continental
Resources Inc., has vocally pushed for trade investigations of the
Saudis, saying they are unfairly dumping cheap crude onto
markets.
One person familiar with the president's thinking says tariffs
under Section 232 of the Trade Expansion Act of 1962 have also been
discussed. That measure gives the president wide discretion and the
potential to act quickly if the administration determines national
security is at stake.
Mr. Hamm and many oil producers have been lobbying the Trump
administration for help since the collapse of the Saudi-Russia
alliance last month. Crude prices had already started a plummet as
the coronavirus pandemic slowed the economy and shrank demand, and
U.S. companies came into the crisis mired in heavy debt.
Trump administration officials consider federally mandated cuts
or even a passive endorsement of U.S. output cuts to be a
third-rail, government overreach into private enterprise.
While less extreme than production cuts, tariffs are unpopular
with a swath of the industry, which has historically championed a
free-market approach to oil. The two largest U.S. oil companies,
Chevron Corp. and Exxon Mobil Corp., have lobbied against any
oil-market intervention.
"Low tariffs are what's best for our globe and our business in
the long term," Exxon Chief Executive Darren Woods said Tuesday
To achieve economic goals, Mr. Trump has issued or threatened
tariffs against other countries -- even allies. And he has been
aggressive with punitive action in foreign policy, ramping up
international sanctions while relying on low energy prices to limit
economic blowback.
U.S. officials had voiced optimism late last week that a
resolution would come with little U.S. intervention.
But the 23-nation alliance led by Saudi Arabia and Russia --
known as OPEC+ -- delayed talks it had been set to revive Monday to
curtail production by as much as 10 million barrels a day. It has
pushed them to Thursday after Saudi Arabia and Russia swapped
barbs, and the U.S. failed to outline production cuts of its
own.
Tuesday an arm of the Energy Department released an estimate
that domestic production of crude oil will fall 13% by year's
end.
Administration officials plan to use that government forecast as
evidence to Russia and Saudi Arabia that U.S. cuts are coming, a
senior administration official said. It is a diplomatic needle to
thread, potentially giving foreign rivals the signal they want of
U.S. cutbacks, even without government commitments.
Most oil companies have supported a diplomatic push to persuade
the Saudis and the Russians to stand down, but little consensus has
developed beyond that. Other approaches with wide industry support
would waive royalty payments for production on federal lands or
limits on what ships can transport oil around the U.S. But both
offer limited help, and lobbyists said Wednesday the White House
has rejected royalty waivers.
The administration has discussed more aggressive options,
including sanctions on Russia, a shutdown of offshore production
and offering an oil alliance to Saudi Arabia if it ditches OPEC.
Some in the industry and Washington considered those too extreme,
and the Interior Department said this week it wouldn't shut down
Gulf of Mexico production.
Many of the options that promise the most impact would help some
energy companies but hurt others, making it difficult for the
administration to settle on anything, said Kevin Book, managing
director of the analysis firm ClearView Energy Partners LLC. Mr.
Book has been saying since last week the administration was more
likely to approach OPEC+ with "credible threats of reprisals" than
with commitments to cut output.
"Without discipline, there is no bargain," Mr. Book said.
"Multilateral deals don't happen at the 11th hour in my experience.
It's more like the 13th."
Many people who were at or briefed by participants of a White
House summit with oil executives on Friday consider it a big win
for large companies that Mr. Trump refused to endorse more
aggressive intervention. But he also refused to rule them out, and
many consider it harder for him to keep doing that the longer the
price war goes on.
Allies of smaller and independent producers have vowed to keep
pushing the administration in the other direction, especially to
take action against Saudi Arabia.
Sen. Dan Sullivan (R., Alaska), another meeting attendee,
co-sponsored a bill in March that would remove U.S. troops and
missile batteries from the Kingdom in response to the oil-price
war. He said Saudi Arabia's decision to flood the market with oil
during a global crisis was a betrayal from a "supposed ally."
"If they don't act soon, we don't care what they're going to do
later," Sen. Sullivan said. "Time is not on their side."
Write to Timothy Puko at tim.puko@wsj.com and Christopher M.
Matthews at christopher.matthews@wsj.com
(END) Dow Jones Newswires
April 08, 2020 13:57 ET (17:57 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.