Belcher: Trump’s Policies Could Strain Global Energy Markets

President Donald Trump began shaking up the global order even before he was inaugurated with a slew of pronouncements that included threats of tariffs, reinstatements of trade sanctions and acquisitions of Greenland and the Panama Canal. It is clear that we are on the cusp of a new foreign policy that will have huge implications on global politics, impacting crude and natural gas markets.

The tariffs expected to be put in place by the Trump administration are likely to be designed to set the stage for future negotiations over trade agreements. They are, however, not without consequence to the oil and gas industry, which will pay more for products and equipment manufactured overseas if they are instituted. The energy services sector, which directly employs over 655,000 Americans and amounts to
$271 billion in direct economic activity, will have to absorb the estimated $2 billion in additional costs associated with higher costs from tariffs.

At worst, new tariffs could result in a trade war that restricts the movement of global commerce, creates a worldwide recession and squeezes supply chains. At a minimum, it could increase interest rates and the overall cost of capital.

A return to sanctions by Trump on Venezuelan and Iranian oil would impact around 4.28 MMbbl/d of crude. This will undoubtedly significantly decrease output from these oil exporting nations, putting upward pressure on prices. While higher prices are welcome news for oil producers, economic troubles in Europe and Asia have been driving down demand, and higher crude prices would further exacerbate headwinds in those economies.

In the last few weeks of his administration, President Joe Biden, no longer fearing the impacts of higher energy prices, increased sanctions on two Russian oil companies, its LNG exporters and its “dark fleet” oil tankers. While lower prices and lower global demand have lessened the perceived impact of sanctions on Russian oil, the additional sanctions on Venezuela and Iran will further complicate the equation.

The sanctions imposed by Biden were meant to weaken Russia vis-à-vis Ukraine, its global ambitions and its complicated alliance with China. Evidence of the emergent Russia-China alliance can be seen in recent incidents in which Russian and Chinese vessels have dragged their anchors across subsea power and communications cables in the Baltic Sea and Taiwan Strait, an act of sabotage in an increasingly tense global environment.

Tariff strategy

Early signs suggest how the Trump administration will address the situation in Europe. At the same time that Trump has been threatening to impose tariffs as a negotiating tactic over trading terms and calling on NATO countries to increase their financial contributions to the alliance, Europe’s economy is fragile amid high energy prices and a consequent bleak outlook for competitiveness of Europe’s manufacturing sector.

Following the Jan. 1 expiration of a natural gas supply contract between Russia’s Gazprom and Ukraine’s Naftogaz, almost all pipeline routes for Russian gas to Europe have been shut down. Meanwhile, Trump is expected to take all possible actions to maximize U.S. LNG exports to Europe (and elsewhere), with the LNG market a potentially significant area of cooperation between the U.S. and Europe that could help stave off a deterioration in transatlantic relations.

At the same time, the Trump administration is moving away from the Paris climate accords and other policies that commit to climate action and ESG, representing another area of contention with the EU and some European countries individually. Europe’s Carbon Border Adjustment Mechanism, EU Methane Regulation and other climate-related rules that impact trade will likely be areas of negotiation with the Trump administration as it seeks to reduce the impact of these initiatives on U.S. trade, including American LNG exports.

Additionally, 2025 could be a tumultuous year politically in Europe, as center-right and populist political parties seek to build upon recent victories in Italy and the Netherlands. Elections will occur in Germany, France and potentially the U.K., where unpopular left-of-center governments, facing a backlash from high energy prices and immigration, are likely to fall and be replaced by governments more politically aligned with Trump.

Trump is seeking to end the war in Ukraine through a peace agreement. The war has resulted in hundreds of thousands of casualties and has severely weakened Russia financially and militarily. Critics of a peace agreement argue that Russia will be emboldened by an agreement which would likely result in territorial gains. It could also allow Russian oil back into Western markets, which would help to strengthen its economy and influence in the West.

However, peace would also allow the U.S. and Europe to reprioritize their mutual goals of expanding manufacturing capabilities, better concentrating on containing Chinese expansionism and ensuring that the growth of a BRICS currency does not rival the dollar as the world’s reserve currency.

Adding Greenland

Trump’s global ambitions and related rhetoric is another area of consequential tension. Talk of territorial acquisitions in Greenland and Panama complicate relations with Latin America and further complicate dealing with Europe, especially Denmark and the rest of Scandinavia.

There is a long history of the U.S. seeking to purchase Greenland for resource development and for reasons of national security, and Russian and Chinese ambitions in the Arctic are a real geopolitical concern. Both nations have been acting aggressively by growing their presence in the Arctic archipelago of Svalbard, which is owned by Norway and has significant mineral resources. 

As for Panama, Trump’s talk of reacquiring the strategically important Panama Canal is part of an overall China strategy that includes a goal of countering China’s presence in the Canal, which is vital to global energy trade, including crude oil.

Middle East challenges

Nowhere is geopolitics more complicated and historically important to the oil industry than the Middle East. Israel’s recent victories over Iranian proxies Hamas, Hezbollah and the Houthis have Iran on its back foot after years of being on the offense. Trump will make weakening Iran a priority of his Middle East policy, not only through the aforementioned oil sanctions but through diplomatic actions in the region.

A major priority includes building upon diplomatic successes in the first administration with the Abraham Accords—which normalized relations between Israel and United Arab Emirates, Bahrain, Sudan and Morocco—by mending relations with Saudi Arabia and the Gulf States. As part of this effort, the administration will be attempting to drive a wedge between these countries and Iran, Russia and China.

Energy dominance is a key goal for the new administration. Clearly, much of that goal is focused domestically on increasing production of oil and gas, maintaining the dominant U.S. position in refined products, chemicals and NGL, boosting LNG production and exports, meeting increased power demand, and upgrading and expanding our energy infrastructure (pipelines, transmission and distribution, and ports).

However, an equally important part of energy dominance is geopolitical. The new U.S. administration aims to accomplish this by growing the strength of the West, strengthening our relationship with Saudi Arabia and the Gulf States, restructuring our North American trade alliance with Canada and Mexico, isolating Iran and Venezuela, and countering Russia, China and the BRICS movement. It is a complicated chess match that will no doubt be fun to watch.