Trump’s Promise to Reduce Oil Prices Brings Uncertainty to the Global Market for Black Gold

 

The victory of Republican Donald Trump in the US presidential election and his imminent return to the White House (the inauguration ceremony is scheduled for January 20, 2025) promises the world big changes on the geopolitical and energy tracks. At least this assumption is based on several of Trump’s pre-election hype promises: to lower global oil prices to $50 per barrel and ensure a sharp increase in national hydrocarbon production.

However, we need to soberly assess these slogans and link them to objective reality. That is, promises are by no means a guarantee of their fulfillment, since the global oil market lives in a multifactor paradigm. And the active actions of one major player (the United States) are not capable of influencing the market too much. The opponents’ bloc is more powerful: for example, the production potential of only the tandem of Russia and Saudi Arabia within OPEC+ is much higher than that of the United States.

Iran is also a serious player in the global energy market. Donald Trump is expected to harshly apply oil sanctions against Tehran during his new term in the White House. In such a scenario, there will be less Iranian oil on the global market. This factor is in support of the barrel, given the republic’s export resource potential. According to the Platts agency, Iran produced more than 3.2 million barrels of crude oil per day in September.

Sanctions during Trump’s first term in office led to a decline in Iranian oil production to about 2 million barrels per day. However, since then, Tehran has created “bypass” financial corridors to organize the sale of its oil, so the reduction in exports may require the introduction of stricter restrictions for buyers and intermediaries involved in the trade. As for China, Trump threatens to apply tariff barriers – to return the trade war to an active phase. In his vision, this will restrain the pace of the Celestial Empire’s economy, which will reduce global demand for oil. However, for the American economy, this may also be sensitive, given the scale of cooperation between the two countries. Therefore, there should not be any strong excesses, given the essence of Trump as a businessman, and not just an imposing politician. As a result, the White House in this field will rather be a generator of permanent speech than real moves. And the format of trade cooperation between Washington and Beijing will not be radically transformed.

It is also important to understand what moves the White House will make towards the Kremlin. A number of experts suggest that Trump may weaken the $60 per barrel price cap for Russian oil set by the G7 countries, since there is an opinion that it is beneficial to Moscow and Beijing, and its “bypass” is ensured by the created network of intermediaries. But at the same time, it is logical to assume that Trump may tighten energy sanctions against Moscow if it does not agree to his deal to end the military conflict in Ukraine. However, predicting the development scenario here is currently a very difficult puzzle due to the lack of input data, although the prerequisites for resuming dialogue between the leaders of Moscow and Washington leave chances that a compromise is still possible. As is known, under Biden, negotiating prospects on the topic of resolving the conflict in Ukraine were generally absent, despite the accumulated palette of “peace plans” with the participation of a number of international mediators – Turkey, China, India, Saudi Arabia, the UAE and other states.

Overall, Trump’s approach to sanctions will likely depend on the nature of the oil market when he officially takes office. The role of the United States as a resource giant, which Trump promotes, is not so plausible. For example, Trump’s announced plan to raise the production bar of the American oil and gas industry is still imaginary, since it is hardly realistic to ensure an industry production “leapfrog” with the price target for oil of $50 per barrel that he himself declared. In addition, Trump has certain obligations to oil and gas producers – after all, the industry majors seriously sponsored his campaign. At the same time, the oil and gas industry is already in a “renaissance” phase, although the current American leader Joseph Biden is known for his commitment to “green” energy. The paradox is that during the four years of his presidency, national oil production has seriously “shot up”: now American companies produce about 13 million barrels per day against about 11 million bpd in 2020. Perhaps, it is fair to conclude that this is not the result of the White House stimulating the industry, but rather an economic reality: the OPEC+ deal restrains the alliance’s production, allowing the price of a barrel to be maintained at a relatively comfortable level for exporters of “black gold”. But at the same time, such a cartel restraint of the production bar pushes the North American shale industry towards progress.

The predictions that Biden would create problems for shale production turned out to be unfounded. There was no breakthrough in the “green” course of America during his four years in office. Trump also does not promise support for alternative energy, wanting to concentrate on traditional energy. Only American electric mobility may receive preferences: the founder of the electric car manufacturer Tesla, Elon Musk, is an adherent of the new US leader and is counting on a position in his team. The market takes this into account: the stock capitalization of the automobile group has again exceeded $ 1 trillion. Miners are also rejoicing – the price of Bitcoin has updated records since Trump was declared the winner of the election. This is the result of his recent statements about the need to make the United States a leader in the field of cryptocurrencies, create a strategic reserve of Bitcoin and appoint regulators who will support digital assets.

Alexander Pasechnik
Head of the Analytical Department National Energy Security Fund

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