With OPEC, Trump makes his favorite kind of deal: One where he gives nothing

Donald Trump just saved OPEC from the worst oil price war in history by offering cuts in U.S. production he didn’t have to make—because the coronavirus outbreak already forced even bigger cutbacks. It wasn’t the first time this master of illusion landed a big deal by giving little or nothing.

In 1994, Donald Trump, his empire collapsing under crushing debt, was breakfasting at his Plaza Hotel with a group of investors from Hong Kong keen to purchase the French renaissance landmark, then on the brink of foreclosure. Also present was Barbara Corcoran, founder of real estate brokerage firm the Corcoran Group, and now a star of CNBC’s “Shark Tank.” Corcoran recounts that Trump barely mentioned the Plaza, and began touting an empty 77-acre tract along on the Upper West Side called Riverside South––a property Trump was about to lose to lender Chase Manhattan––as “the greatest piece of land in the world,” and the perfect Manhattan trophy.

Trump’s pitch was so magnetically irresistible that within weeks the Hong Kong contingent bought Riverside South, a place they’d never heard of before meeting the Donald, and handed Trump 30% ownership in exchange for a relatively small cash contribution. Trump eventually parlayed his stake in Riverside South into what may be his empire’s most lucrative holdings: office buildings in midtown Manhattan and downtown San Francisco worth over $1 billion, valuing Trump’s share at more than $350 million.

The oil crisis struck in mid-March, after Russia refused to make the deep cuts in output demanded by OPEC leader Saudi Arabia, reductions needed to support prices hit by sagging demand from motorists and factories hamstrung by the outbreak. To pressure Moscow, the Saudis raised their production by 3 million barrels a day, or around 30%, flooding the market with oil. That gambit drove West Texas Intermediate crude to a 48-year low of $20 a barrel by late March, from around $60 at the start of 2020. By early April, Russia caved, and the new rebel emerged as Mexico. Like Russia, Mexico isn’t an OPEC member, but belongs to OPEC+, the extended group of 10 nations that in recent years has joined with the 14 OPEC stalwarts in imposing jointly-agreed quotas on output.

OPEC+ controls almost 50% of global oil production, so if its members kept squabbling, the world faced a new era of $20 crude. That scenario spelled disaster for the industry that supports 9.8 million American jobs, especially the shale pioneers that have made the U.S. the world’s largest producer. According to research firm IHS Markit, the America’s shale wells are typically profitable at prices of $50 and higher. In early April, big frackers were dumping crude in the cash market for under $10 a barrel.

Trump, who’s frequently denounced OPEC as a dangerous “cartel” that raids Americans’ wallets by inflating prices at the pump, rushed to support OPEC in the name of saving American jobs. His dealmaking chronology is clear from his comments at his daily coronavirus press briefings and statements from officials in Saudi Arabia, Russia, and Mexico. The Saudis were demanding that Mexico lower its output by 350,000 barrels per day, and Mexico was offering just 100,000. Both sides were obstinate. Trump viewed a path to a breakthrough. On Thursday, April 9, he called Mexican President Andres Lopez Obrador, and said the U.S. would furnish a reduction of 250,000 barrels per day to bridge the two sides. As the President stated at his daily the next day, “In speaking to the president [of Mexico], they have a limit, and OPEC has a different limit, so I thought what I’d do, the U.S. will help Mexico along, and Mexico will reimburse us at some date in the future,” later adding, “We’re trying to get Mexico over a barrel.”

On Friday, Trump held a three-way call with Russian President Putin and King Salman of Saudi Arabia to sell his solution. It worked. Over the weekend, Lopez Obrador praised Trump for “very generously” saying that he “was going to help us,” and an Obrador lieutenant lauded the President’s offer as “historic.” On Easter Sunday, OPEC+ announced a new agreement among the 24 nations reducing their total output by 9.7 barrels per day, or 13% of global production, four times OPECs curb in the financial crisis.

Trump’s coup is being applauded far and wide. Saudi energy minister Prince Abdulaziz bin Salman exulted that “OPEC is up, running, and alive!” and declared himself “more than happy.” The American Petroleum Institute, the industry’s trade group, lavishly praised Trump’s role in reaching the accord. Even free-marketers such as energy sage Daniel Yergin praised Trump in a TV interview for “pivoting” from his aversion to OPEC and coming to see the oil price collapse as “a national security issue, an employment issue.” Yergin adds, “This has to be the biggest and most complex deals of Trump’s career, a triumph that saved the world’s most important commodity from a job-killing collapse just as the coronavirus ravaged the world economy. … When he just jumped in a week ago we were talking about oil going to $10, and now $30 is where it looks like it’s going to be.”

Jim Burkhard, an analyst who works at IHS Markit alongside Yergin, told Fortune, “The truce would not have happened without the forcefulness of Trump’s engagement. Saudi Arabia would not give Mexico an exception. It was historic to get Saudi Arabia, Russia, and the U.S. on the same page.”

Big deals normally require big concessions. So what exactly did Trump deliver to land this one? According to press reports, Putin pressed Trump to impose legally-enforceable quotas on U.S. oil producers. Trump declined—and got away with it. Although the federal government could technically supersede the antitrust laws and mandate that individual companies limit their output to establish an OPEC-like ceiling, no mechanism exists for doing so. Rather, Trump declared at a press briefing the week the deal was negotiated that “the cuts have already been made… because we’re a market-driven economy.” He was simply describing a stricken marketplace. The coronavirus crisis had pummeled sales to the point where U.S. producers, unable to find buyers and watching storage tanks fill to the brim, shuttered wells and slowed the flow of oil. U.S. producers furnished the cutbacks Trump promised not by government edict, but by acting on their own. Those cutbacks were in the cards whether Mexico, Russia, and Saudi Arabia ended their standoff or kept battling.

That’s precisely the what the data is showing. According to the Energy Information Agency, U.S. crude output dropped a staggering 600,000 barrels a day the week ending April 3 alone, from a near-record 13 million barrels a day to 12.4 million, three-times the number Trump promised. At the G20 meeting in Riyadh on Friday, April 10, the day Trump was relating how his maneuver is helping to rescue the U.S. and world economies, U.S. energy secretary Dan Brouillette stated that stateside production would drop by 2 million barrels per day through 2020, sans government meddling, ten times the quantity needed to satisfy Trump’s pledge.

In securing the deal, the Trump Administration has put nothing in writing. It hasn’t established a benchmark against which the 200,000 barrel a day cut would be measured. No procedure has been established for Mexico to “reimburse” the U.S. for the hypothetical 200,000 barrel per day reduction. In fact, a U.S. government source close to the negotiations tells Fortune that Trump’s promises “are informal, as the reductions in the U.S. are being driven by the free market.” Who else but Trump could make a phantom-concession look like a sacrifice worthy of moving the world’s most stubborn combatants to trade war for peace?

However, the OPEC accord has a big potential downside, and Trump might live to regret it. The deal sets the longest-lasting guidelines in OPEC history. Starting on July 1, the reductions fall from 9.7 to 7.7 million barrels per day until year end, then taper to 5.8 million from the start of 2021 until April of 2022. Hence, if the agreement holds, world supplies would still be over 7% below late 2019 levels two years from now. If world economies bounce back, those constraints could lift oil prices––crude sold at over $75 a recently as mid-2018––back to inflated levels that could damage America’s economy.

Another danger: The big oil states have a vehicle for imposing anti-competitive quotas: the agencies that regulate the industry. The drive to find common cause with OPEC, spearheaded by Trump, has emboldened officials to push for state-imposed limits on production. One of the three commissioners of the Texas Railroad Commission, the agency that despite its name regulates energy, has called for an across-the-board 10% cut to output as a tool for supporting prices, chiefly for endangered frackers, and leaders of Big Shale are lobbying for an even deeper curbs.

That policy is a bad idea. It would support over-leveraged frackers, and delay the consolidation that would help the industry reduce its costs. Trump’s ploy to stop an oil collapse on top a shutdown across the world economy is likely the right move. But he’s also right in branding OPEC as America’s enemy, and America’s enemy it will be again. So far, Trump hasn’t abandoned this commitment to leave markets free to set oil prices. He just invoked some wizardry to make the U.S. appear to join the “managed markets” crowd.

Along with that parcel of land on the Westside, this one, too, is a deal for the ages.

More must-read finance coverage from Fortune:

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—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19

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