U.S. policy – abundance mindset
President Trump has achieved many of his core energy policy action items in his first year back in office, with WTI prices sitting 12% lower year-on-year, U.S. crude production topping 13.8 mb/d, OPEC phasing out voluntary cuts, and the 12-day war in Iran failing to produce a regional supply disruption. It is clear from our conversations in Washington that lower energy prices will be key to manifesting many of President Trump's signature economic goals: principally, the reindustrialization of the country and winning the baseload battle that underpins AI supremacy. In a speech at last week's National Petroleum Council meeting, Energy Secretary Chris Wright stated that prolific U.S. production would ensure prosperity at home by enabling the reshoring of manufacturing jobs and providing low-cost molecules for a massive datacenter buildout.
President Trump's first National Petroleum Council meeting in December 2017 saw the launch of the American energy dominance agenda, but many of the anticipated gains were in the realm of foreign policy. At that 2017 meeting, U.S. Secretary of Interior Ryan Zinke insisted that abundant U.S. production would allow the White House to punish foreign adversaries, such as Iran and Venezuela, while shielding U.S. consumers from the costs of this coercive strategy. This time around, lower energy prices are at the heart of the administration's economic agenda in line with the overall America First mandate, with foreign policy benefits taking more of a backseat.
Secretary Wright indicated that aggressive permitting reform and the deregulatory agenda would provide the enabling backdrop for sustained production growth in the years ahead. Absent from Secretary Wright's remarks was any mention of the requisite price environment necessary to sustain output at current levels. Other senior administration officials have told us that technological advances, as well as the permitting and deregulation effort, have driven down breakevens materially. The industry concerns outlined in the October Dallas Fed Survey about the inimical impact of lower prices, tariffs, and labor shortages do not seem to be gaining significant traction with the White House.
By contrast, President Trump proved to be very responsive to CEO concerns about the cratering price environment in the wake of the March/April 2020 price war between Saudi Arabia and Russia and the COVID-driven demand collapse. Back then, President Trump essentially appointed himself the de facto president of OPEC to get the group's largest production cut over the finish line (helping to craft a workaround arrangement for Mexico). While President Trump was very focused on delivering affordable retail gasoline prices for consumers in his first term, lower energy prices were not lauded as a linchpin of his economic strategy in the same manner as now. It remains to be seen if the administration will shift its view on the requisite price environment for shale growth next year. Looking ahead, the White House may end up providing producers a measure of price relief as a byproduct of sanctions or military intervention decisions, but a deliberate effort to firm the floor does not appear in the offing at the time of writing.
Venezuela – Monroe Doctrine 2.0
We are currently watching the U.S. military buildup off the coast of Venezuela and believe a U.S.-led regime change operation is likely in the cards in the coming weeks or Q1'26, Wednesday's interception and seizure of a sanctioned Venezuelan tanker marks another escalation in tensions. The official reason for the U.S. deployment remains a counternarcotics effort. However, Cuba concerns and a broader reassertion of U.S. hegemony in the Western Hemisphere appear to be key drivers for some of the most prominent proponents of ousting Maduro based on recent conversations in Washington. These officials see Venezuela not only as a key ally of the Cuban government, but also as an outpost of Russian and Chinese influence in the region. In some respects, they appear to be reviving the Cold War domino theory playbook by claiming that removal of the Bolivarian regime in Venezuela will alter the power dynamics across the hemisphere. Certainly, a revival of American dominance in the Western hemisphere is a core objective of the recently released U.S. National Security strategy, which specifically calls for a Trump corollary to the Monroe Doctrine.
Regime change advocates point to the revitalization of the Venezuelan oil sector as a key dividend of such an interventionist strategy, though we find ourselves in the more cautious camp when it comes to the near-term turnaround prospects for the industry. Even if President Maduro leaves Venezuela voluntarily, we think it will be a protracted process before the country sees significant production gains due to the decades-long decline of the sector (including the exodus of thousands of PDVSA personnel and sustained infrastructure damage).
"We are currently watching the U.S. military buildup off the coast of Venezuela and believe a U.S.-led regime change operation is likely in the cards in the coming weeks or Q1'26."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
Removing all sanctions could in principle lead to a relatively swift increase of several hundred kb/d, but anything beyond that would require enormous investment and a stable operating environment. Leading industry experts who we spoke with in Washington put the revitalization price tag at around $10bln annually. They also warned that the military could play the spoiler role in a contested power situation since it plays such a large role in the operations of national oil company PDVSA—as well as the broader economy. Hence, there is a very live question of who will guarantee the peace and lead the costly reconstruction effort, especially with the America First camp of the Republican party already questioning whether the military deployment is consistent with the President's campaign promises.
As the Trump administration shows little appetite for putting boots on the ground for an extended period, we think there is a real chance of a chaotic post-Maduro transition. Certainly, we think there will be a corner of the market that would like to manifest a path to a stable government and a 1+ mb/d production surge, but we would caution against overexuberance and think there is a near-term downside supply risk if the armed forces seek to block the emergence of a U.S.-aligned regime intent on dismantling Military Inc.
Russia/Ukraine – elusive peace
While U.S. Special Envoy Steve Witkoff and Jared Kushner continue to lead the effort to secure a ceasefire, there is scant evidence that Russia is sufficiently incentivized to scale back its maximalist aims, with a key factor being that it continues to receive enough energy revenue to fuel its manpower advantage over Ukraine. The fact that Europe is not at the table for the US-Russia talks also limits how much sanctions relief Russia can secure, in our view, even if Washington pursues a separate peace next year.
As we have previously noted, many of the punitive measures targeting Russian energy—including the all-important EU 6th package of sanctions—were enacted by Brussels, not Washington. Moreover, the current direction of travel points to stepped-up European sanctions efforts, with a move to potentially replace the price cap mechanism with a blanket ban on the provision of European services to move barrels to third-party markets. European leaders, especially those in the neighboring Baltic states, continue to express grave concerns about Russia expanding the scope of the conflict beyond Ukraine. They warn about a possible deployment of troops next year to the Russian-speaking Estonian region around Narva as a way for Moscow to test the resolve of Washington to support the NATO Article V collective defense agreement.
"Ukraine looks set to continue its attacks on Russia energy facilities in 2026 as part of an effort to defund Moscow's war ATM."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
The scaling-back of U.S. military and financial support for Kyiv has helped fuel domestic drone innovation, with Ukraine reportedly producing over two million UAVs this year. In recent months, Ukraine has shifted from primarily attacking refineries that provide fuel to the frontlines to targeting pipelines, terminals, and shadow fleet tankers involved in the export of Russian crude. If the pace of such attacks continues, and the current sanctions regime remains in place or becomes even more restrictive, we do see scope for actual production shut-ins next year. Again, we do not entirely rule out a diplomatic resolution, but at present President Putin appears to be going through the motions of participating in talks to placate President Trump rather than offering concrete concessions that would bring the war to a swift close.
OPEC+ – spotlight on spare capacity
While many market participants continue to focus on the prospects of a supply glut next year, the absence of substantial OPEC spare barrels will likely become more apparent when the group launches its maximum sustainable production capacity assessment next year. The outcome of this assessment—which will certify the number of barrels each member can bring on in 90 days and keep on for a year—will serve as a reference point for establishing production baselines in 2027. We believe this exercise will demonstrate that meaningful spare capacity only really resides in Saudi Arabia at this stage.
Though most forecasts, including ours, show a well-supplied market for next year, OPEC still has the principal shock absorbers in the event of an unintended outage. Hence, we continue to advise monitoring Russia and Venezuela but also another Israel-Iran confrontation next year — especially if Chinese demand surprises to the upside, potentially based on continued SPR filling for strategic considerations. We continue to note that several senior U.S. officials have linked Chinese stockpiling to a broader preparation for a possible conflict over Taiwan. We continue to contend that the OPEC+ reserves the right to change policy if a serious inventory overhang does emerge and that they are not inclined to repeat the 2015/2016 experience. Rather than hitting cruise control, we think the OPEC leadership will keep its hands on the wheel in 2026.
Helima Croft authored "2026 Look-Ahead: Manifest Destiny," published on December 10, 2025. For more information on the full report, please contact your RBC representative.
