First, using oil as a weapon could backfire. While higher oil prices would benefit producer nations like Saudi Arabia in the short term, rising crude costs also threaten to wipe out demand, particularly in emerging economies.
Oil ministers cited this concern in June, when a group of about two dozen nations agreed to put more oil on the market. Since then, prices have continued to rise, big oil consumers like India have complained anew about the cost of crude and prominent forecasters have knocked down their projections for oil demand.
The move would also threaten to erode Saudi Arabia’s share of the global market, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions.
“As the largest oil exporter, Saudi certainly has the capacity to spark a price shock by dramatically cutting back on supplies,” she said. “However, I don’t think that they will ultimately go this route since doing so would also strengthen their regional and market share rivals — Iran, U.S. shale and renewable sources.”
Second, allowing crude prices to percolate higher would likely worsen Saudi relations with the White House. Trump, wary of the price at the gas pump ahead of midterm elections, has repeatedly called on OPEC to tame oil prices, most recently at the United Nations General Assembly.
Higher gasoline prices threaten to eat into Americans’ purchasing power and dampen their view of the economy.
Finally, Saudi Arabia has long been viewed as OPEC’s de facto leader. Riyadh risks losing credibility if other members of the 15-nation cartel perceive the kingdom is using oil policy to settle political scores.
“The question is will Saudi really use this oil weapon?” Helima Croft, global head of commodity strategy at RBC Capital Markets told CNBC’s “Closing Bell” on Monday. “That would endanger Saudi’s reputation as a stable, reliable supplier to global markets.”