Donald Trump’s stunning victory last Tuesday’s US presidential election sets the stage for a new oil battle with the Organization of the Petroleum Exporting Countries (OPEC) and intensification of the competition in world oil markets.
While the president-elect does not yet have clearly articulated detailed policies on most energy issues, his campaign promises indicate he would likely adopt policies in favor of increasing fossil fuel (oil, gas and coal) output, ease regulations on industry and undo most of Obama’s “clean” policies.
Trump’s proposals or what he calls it “energy revolution” including open onshore and offshore leasing on federal lands, eliminate moratorium on coal leasing, and open shale energy deposits. He promised to free up energy industry from red tape; eliminating renewable energy subsidies and vowing to ‘cancel’ the international Paris climate.
He has made sweeping promises to unleash what he argues “Americas $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves”. Trump’s energy plan indicates that his ultimate aim appears to ‘become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests’.
To be sure, since President Obama’s election, US production of oil and gas has surged significantly, making America the world’s largest energy producer and reducing oil imports from over a half to less than quarter of the country consumption. This trend is most likely to continue as the Energy Information (EIA) in its Annual Energy Outlook 2016 projects that US total net imports of crude oil and products fall from 4.6 million barrel per day (mb/d) in 2015 to 3.3 mb/d in 2025, and 1.7 mb/d in 2035.
All of this comes ahead of OPEC’s meeting at the end of this month. Trump’s win complicated the global energy landscape and OPEC now faces triple threats; gloomy outlook for the global economy, weaker demand for oil and prospect of surge in US oil production. This situation poses a dilemma for the organization, while cutting the production could lead to a loss of market share, yet walking without a deal will certainly increases the downward pressure on oil prices.
In the medium or long term if Trump has fulfilled his promises related to the energy sector, the United States could become an exporter of oil and liquefied natural gas (LNG) competes with the Middle East countries in the global markets.
Trump’s win complicated the global energy landscape and OPEC now faces triple threats; gloomy outlook for the global economy, weaker demand for oil and prospect of surge in US oil productionNaser Al-Tamimi
Trump has opposed the proposed Trans-Pacific Partnership (TPP) trade deal between the US and Asia; called for fundamental changes to the North American Free Trade Agreement (NAFTA) with Mexico and Canada and threatened to pull the US out of the World Trade Organisation. He has also threatened to impose imposing steep tariffs 45 percent on Chinese exports, stoking fears of a trade war.
If the president-elect were to follow through on these threats, he would spark a global trade war and could well plunge the world into a recession and it will be negative for oil demand Daniel Yergin, vice-chairman of analysis firm IHS Markit and author of The Prize, a well-known historian of the oil industry, told Reuters: ‘The outcome of the US election adds to the challenges for the oil exporters because it likely leads to weaker economic growth in an already fragile global economy, (...) and that means additional pressure on oil demand.”
Iran ... A puzzle
However, the uncertainty that prevails in Mr. Trump’s policy toward the nuclear deal or the Joint Comprehensive Plan of Action (JCPOA) with Iran cast a shadow over oil prices. Mr. Trump has strongly criticised the JCPOA with Iran and threaten to revoke it or re-negotiate. But escalating tensions with Iran will increase the upward pressure on oil prices.
According to some legal experts, the agreement is not a treaty, and therefore is not binding for the next American president. However, Trump could resort to “salami tactics” and instead of abrogating the entire agreement, he could undo the executive orders signed by Obama, refuse to certify Iran as compliant with the agreement and revoke a general license authorizing foreign subsidiaries of US companies to seek business in Iran. However, uncertainty will for sure hinder Iran’s policy in attracting significant foreign investment
Under Trump Administration there is also a strong possibility that Russia relations with the US will improve, and may eventually result in a reduction in the sanctions during the next year, allowing Russian energy industry to tap more easily global finance. As a result, Russia surely will boost its oil production capacity. Certainly, Russian oil hits new post-Soviet high of 11.2 mb/d in October, on track for annual record.
All in all, while OPEC or the Middle Eastern oil producers were busy competing with only the shale oil, they will be entering in competition with shale oil plus Trump and reserves previously untapped in America.
Dr. Naser Al-Tamimi is an independent UK-based Middle East researcher, political analyst, and commentator with particular research interests in energy politics and Gulf-Asia relations. AL-Tamimi is the author of the book, (China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance? Routledge, 2014). He has also carried out extensive research on various aspects of Middle East-China/Asia relations, Saudi Arabia in particular. AL-Tamimi has worked for numerous Arab media and academic institutions, in the United Kingdom and a number of Arab countries and has written several articles, papers, and chapters in English and Arabic, (available at: https://independent.academia.edu/nasertamimi) on the most pertinent political and economic issues affecting the Middle East. The writer can be reached at: Twitter: @nasertamimi or @chinaarabnews and email: firstname.lastname@example.org