Moreover, Trump’s efforts to change regulations for American oil exporters have made the country a top exporter of black gold. The US has also invested heavily in shale oil. That indicates the US’s new approach vis-à-vis international energy markets, and its attempts to boost its influence in the market.

Leading oil producers in the Middle East region have been affected by the new US policies more than any other state or group. Should these countries fail to adopt a clear policy vis-à-vis the US, they will face myriads of challenges.

US Growth, Mideast Decline

The US Energy Information Administration (EIA) has said the country’s oil production grew 1.36 mb/d in 2019 year-on-year to reach 12.32 mb/d. The US is projected to increase its oil production by 94,000 b/d next year.

Despite the slow pace of production growth in 2019, EIA expects the American oil output to hit new records this and next year. By the end of 2020, the US oil production will stand at about 13.5 mb/d. The US owes its high oil production largely to the shale revolution that has helped the US exceed Russia and Saudi Arabia and become the world’s largest oil producer.

The US oil production is not limited to overtaking top producers; rather, it has mainly contributed to lower energy prices. Over recent months, the decline in oil prices may be linked to oversupply and high exports by US companies. The abundant supply of oil against the backdrop of higher exports by the US has imposed numerous problems on other producers, particularly Middle East nations. Some of these oil producers have had no option but to sell oil at lower prices. For instance, Abu Dhabi’s Murban oil has been traded on Asian markets at rates below official prices for the 4th consecutive month due to the US oil glut. It has been unprecedented in the past two years. Abu Dhabi National Oil Company (ADNOC) has slashed the base price of this oil grade for the 4th consecutive month the cargoes purchased for delivery during the first four months of the current year were traded at 5-40 cent discount per barrel.

Saudi Arabia has had to reduce the price of all crude oil grades destined for the US in July. In the face of unfavorable market conditions in the shadow of US policies, the Saudis have chosen to bring down their crude oil exports to 7 mb/d in an attempt to prevent any significant decline in the price of oil. Saudi Arabia has already announced its intention to raise output in order to substitute Iran whose exports are faced with US sanctions.

Impact on World Markets

The US energy policy in general and oil production hike in particular have produced the following impacts in the global energy market:

Due to the increase in US oil output, world markets have not shown any significant negative reaction to disruption in oil exports by one or several top producers. Venezuela’s oil exports have fallen to their all-time lows while Libya is faced with uncertainty due to civil war in the African nation. Iran’s oil exports have been also squeezed due to the unilateral US sanctions. Nonetheless, international markets are not showing any significant reaction to such conditions in the oil production and export of long-time producers. This issue explains the US compensation of oil shortages.

Over recent years, the increase in US oil production has ended the country’s dependence on Middle East and Persian Gulf region oil for supplying its needs. The US spent about $386 billion on oil imports in 2008. But in 2018 the US spending on oil imports was slashed to $53 billion. Furthermore, the US’s oil imports from OPEC countries have hit their all-time lows in 32 years. The US is currently importing only 2.18 mb/d from member states of the Organization of the Petroleum Exporting Countries. That is why the US has in recent years taken such actions like imposing sanctions on oil producing countries.

The US’s move to increase its oil production has per se blunted the impact of decisions by such bodies as OPEC. The OPEC+ deal initially helped boost oil prices in international markets; however, the landmark agreement, signed between OPEC and non-OPEC partners led by Russia, is losing its efficiency. Therefore, the US has stepped into the oil market like a destructive player, practically thwarting all efforts made for striking a balance into the oil market.

Challenge for Future

The Trump administration is pursuing a multi-faceted energy policy. On one side, it has increased oil production and exports in order to keep oil prices low for its political ends, while on the other it is waging trade war on China in a bid to negatively affect the global economic growth and cut energy consumption across the globe. In fact, the US is not only increasing its crude oil production to keep global markets in check and reduce oil prices, but also it is indirectly impacting energy market. For instance, China whose economy is among the largest in the world is faced with ambiguities in foreign trade due to the policies of the Trump administration. Official figures are indicative of a sharp decline in China’s imports and exports over recent months. In Japan, machinery orders have sharply fallen, showing limited capital expenditures of companies and the outbreak of trade war between the US and China. The more the US’s trade war with other nations lingers on, the more the global economic growth will decline. That would also cause a decline in energy consumption. Under such circumstances, Middle East nations which are dependent on petrodollars will run into serious challenges.

In addition to the oil production hike in the US, other issues causing divestment in the Middle East and Persian Gulf countries include widespread insecurity due to revolutionary changes in Arab countries and the emergence of terrorist groups. Such factors have given rise to instability and discouraged top companies from investment in these regions. Meantime, a decline in oil consumption is also causing a decline in demand for oil. Oil consumption in energy-starved nations like China has been on the rise in recent years; however, most European countries have moved towards renewable energies. For this reason, oil consumption has sharply fallen compared to the previous decades.

Therefore, major companies are shifting attention from the Middle East.

Courtesy of Iran Petroleum