Belcher: Tariff Growing Pains Will Help US Achieve Energy Dominance

Under the Trump administration, the U.S. is embarking on a multi-faceted foreign policy and trade agenda designed to promote U.S. energy production and technology globally and enhance its ability to impact energy trade and commodities.

A major aspect of this agenda is President Donald Trump’s goal for U.S. energy dominance, through which the U.S. uses all the means at its disposal to maximize its energy production, reduce energy prices, fuel the American economy and manufacturing, and exert its influence around the world, free from the traditional constraints of being a net importer of energy.

To achieve energy dominance, the administration is pursuing domestic policies such as streamlining and reforming permitting and project approval processes, providing greater access to energy sources, improving and updating energy infrastructure, and enhancing access to capital for energy projects.

Effectively, the U.S. energy dominance agenda has at least three goals that are somewhat at odds with one another:

• Boosting U.S. energy production and energy projects and technology at home and abroad;
• Reducing global crude oil prices and ultimately stimulating the U.S. and global economies; and
• Implementing trade policy in a way that better benefits U.S. imports, exports, manufacturing activity and our supply chain.

The key to accomplishing these goals is U.S. leadership through energy diplomacy.

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No longer an importer

For decades, the U.S. was a net energy importer with huge vulnerabilities to OPEC and energy-producing countries in general. Now, as the global leader in oil and natural gas production, the U.S. has a great deal of leverage, and the Trump administration is seeking to take full advantage of this position in its pursuit of reducing oil prices and exercising American leadership through energy diplomacy.

During his first administration, Trump’s first trip was to Saudi Arabia to visit King Salman bin Abdulaziz Al Saud. That visit set the course for strong relations between the U.S. and Saudi Arabia that enabled foreign policy achievements like the Abraham Accords, which established diplomatic relations between Israel and several Arab nations (United Arab Emirates, Bahrain and Morocco).

In his second term, after relations soured with Saudi Arabia under the Biden administration, Trump is seeking to build upon the successes of the Abraham Accords—perhaps expanding them to include Saudi Arabia and other Arab countries—and to improve overall relations between the Saudis and the U.S., and between Arab states and our major ally Israel.

The president’s geopolitical calculus, backed by American energy dominance, has several global implications. First, by enhancing relations with Saudi Arabia and the Gulf States, the U.S. can better isolate Iran and restrict its ability to export oil supplies to nations around the world. Part of this effort is also aimed at China, the U.S.’ largest rival and the major consumer of Iranian oil.

Second, the administration is seeking to enhance its influence with Saudi and Gulf State OPEC oil producers, which could potentially result in the offset or even reduction of Russian influence on OPEC. Through these relationships, the U.S. also seeks to push back on Iran and Venezuela, which it seeks to isolate on the world stage.

Finally, the effort aims to soften the BRICS (Brazil, Russia, India, China, Saudi Arabia) alliance, which seeks to reduce or replace the U.S. dollar as the world’s reserve currency. This could be accomplished through warming relations with Saudi Arabia and India—and perhaps Russia—through a deal to end the war with Ukraine.

OPEC’s recent decision to gradually add back to the market the voluntary production cuts announced in December 2023 will likely keep crude oil prices lower. While one could interpret that decision as a move to keep out additional volumes of higher-priced production, it also can be seen as a move to help boost the global economy, with a realization that: a) there is now significant spare capacity among OPEC producers; and b) the best way to strengthen oil production in the long run is by growing demand, not shrinking supply.

This aligns with Trump’s goals of increasing U.S. oil and gas production along with growing the economy and increasing demand for American energy. However, lower prices will make it harder and less economical for U.S. producers to increase E&P. A complicating element is a weakening Chinese economy and Chinese demand.

At the same time, the Trump administration is seeking to end the war between Russia and Ukraine, which could ultimately result in positive economic impacts and resultant demand for U.S. energy through a return to peace and stability in Europe. Additionally, the administration is seeking to increase U.S. LNG exports to Europe, which in the near-term would help offset the loss of Russian gas exports via pipeline.

All part of the process

Opportunities to implement the U.S. energy dominance agenda extend well beyond Europe and the Middle East. In Asia, for example, the administration sees an important region as a long-term buyer of U.S. LNG. The U.S.’ strong support for the Alaska LNG project, which would involve building an 807-mile, 42-inch pipeline to carry 3.3 Bcf/d from the Alaska North Slope to an LNG liquefaction facility on the Cook Inlet/Kenai Peninsula, underscores its desire to send U.S. gas to Asia. The administration is actively talking with Japan and South Korea about investing in the project and, ultimately, in securing long-term contracts for LNG supplies. Southeast Asian countries are also interested in the opportunity.

Virtually all of Trump’s moves are part of a negotiation process. This is entirely the case regarding Trump’s trade policies and the ongoing issuance, threats and conditions around tariffs. Tariffs have been applied to, and in some cases, temporarily lifted or adjusted. The goal is to achieve new outcomes, such as a reduction in fentanyl trafficking, illegal migration and new trade terms seen as more fair and beneficial to the U.S.

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Tariffs applied so far to Canada, Mexico and China are painful to all businesses, including the energy business, as the cost of raw materials, technology and equipment rises, putting pressure on all aspects of the energy value chain. However, it is important to recognize that tariffs are being used as a short-term tactic to force a renegotiation of trade deals where the U.S. balance of payments skewed heavily in favor of its trading partners.

These policies also seek to help bring critical components of the energy and manufacturing supply chain back to the U.S. Finally, tariffs also seek to achieve the previously stated goal of pushing U.S. allies to take a more pragmatic approach to energy and manufacturing policies.

In the energy realm, administration efforts to further U.S. energy dominance include addressing the vulnerability the U.S. faces due to its dependence on imported critical minerals and the critical mineral supply chain. It seeks to address this dependence by boosting mining and production in the U.S. and through negotiations with other countries to secure future supplies of critical minerals important to the energy, defense, technology, transportation, aerospace and manufacturing sectors.

Trump doesn’t appear to view success based on every individual battle. Indeed, some of the battles are designed to obtain valuable data or to provoke a response that is informative, provocative or both. Broadly, the administration is trying to accomplish multiple goals related to energy dominance, peace and a robust economy, and U.S. global leadership, that aren’t easily achievable in tandem. Time will tell whether Trump can accomplish all of these goals.