US moots idea of Saudi energy alliance to combat crashing oil prices

US moots idea of Saudi energy alliance to combat crashing oil prices
Saudi Arabia and the US could form a new energy alliance, as Riyadh continues its energy war with Russia.
3 min read
24 March, 2020
US Energy Chief Dan Brouillette hinted at an alliance with Saudi Arabia [Getty]

Saudi Arabia and the US could join forces to become energy partners and tackle crashing oil prices, media reported this week, after Riyadh's price war with Russia saw a glut in global supplies and the global coronavirus pandemic hit demand.

US Energy Secretary Dan Brouillette mooted the idea of an alliance with Saudi Arabia - the world's biggest oil producer - on Monday, which could help domestic oil companies hit hard by plummeting prices.

"There are many, many ideas that are floated around the policy space, that is one of them," he told Bloomberg Television on Monday. 

"I don't know that it is going to be presented in any formal way."

The US said it had appointed a special energy representative to Saudi Arabia on Monday, another sign of collaboration between the two major oil producers.

Victoria Coates, a senior advisor to Brouillette, was chosen as the US representative to Riyadh, Reuters reported, although the US energy department denied it was related to the current crisis.

"Coates will be based in Saudi Arabia to ensure the Department of Energy has an added presence in the region," the official said. 

"While her assignment comes at a pivotal time for global oil markets, it has been in the works for a while."

Oil prices have crashed in recent weeks, owing to a slowdown in demand due to the coronavirus pandemic and Saudi Arabia's dispute with Russia over oil production.

The disagreement between the two former energy allies has seen Saudi Arabia ramp up production, leading to the biggest drop in oil prices in decades.

Oil prices reached a new low of $24 a barrel on Monday, which although good for consumers has impacted negatively on a number of economies in the world, including the US.

Many US shale oil producers will be unlikely to survive a prolonged period of low oil prices.

Meanwhile, the IMF has warned Gulf states to take firmer action to rescue economies hit hard by the low oil prices and effective lockdowns due to the coronavirus crisis.

Brouillette said last week that the US government would purchase 30 million barrels to ease the pressure on domestic producers.

The planned programme of buying up 77 million barrels from local producers will cost around $3 billion and needs Congress approval.

A new alliance between the US and Saudi Arabia could offer a longer-term solution to the problem.

"As part of the public policy process, if you will, our interagency partners often get together and talk about a number of different items, but we've made no decision on this," he said, according to Bloomberg

"At some point we will engage in a diplomatic effort down the road. But no decisions have made on anything of that nature."

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