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)

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