How will Trump square energy and foreign policy?
Cabinet appointments to the next administration signal a return to all-out drilling and U.S. energy dominance under the next Trump presidency. But this approach risks colliding with other promises, according to Helima Croft, Head of Global Commodity Strategy and MENA Research.
She questions whether Trump can achieve his goal of a 50% reduction in U.S. energy prices while also taking a tougher line against oil-producing nations, including Iran and Venezuela. “We’ll be watching to see how he squares his desire for lower prices with a more coercive foreign policy against several important energy producers,” says Croft.
Iran attacked critical energy infrastructure in 2019 in response to sanctions, she points out. This time, the country is in a much weaker position because of the war in the Middle East. Croft poses the question: “If President Trump does bring back maximum-pressure economic sanctions and takes hundreds of thousands of Iranian barrels off the market, what does that mean for the overall security picture in the region?”
Tariffs and production demands may be oil flashpoints
Trump’s return poses further thorny issues for the oil market. While last year’s biggest oil headwind was weak demand in China, Trump’s threat of trade sanctions on China may become 2025’s biggest risk to the sector.
“We actually think that Trump’s tariff policy could be the most bearish geopolitical risk to oil markets for next year,” Croft says.
OPEC will be eyeing the new administration warily for other reasons. Trump was an ardent critic of the cartel, before helping to usher in big production cuts after the price collapse of 2020.
Croft foresees he will want OPEC to raise production this time round. That may not chime with members’ own fiscal needs: “It’s a very real question about how compliant they will be with President Trump’s demands for more oil.”
“Trump’s tariff policy could be the most bearish geopolitical risk to oil markets for next year.”
Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets
Ukraine endgame risks triggering desperate action
U.S. policy on the war in Ukraine is also set to shift under the new administration. Key foreign policy advisers have indicated the president will look to bring the war to a quick end. But the terms of such a settlement are far from clear, with potential for a split between the U.S. and Europe if Russia is offered territorial gains or sanctions relief.
“Certainly the countries that neighbor Ukraine, the Baltic states, are deeply concerned that Russia will turn its attention to them,” Croft says. “We can expect them to take a very tough line in opposition to EU sanctions relief.”
This has its own implications for energy markets, she notes: Ukraine and its regional allies could step up attacks on Russian refineries, ports and pipelines in an effort to weaken its enemy as peace talks move into an endgame.
