The energy outlook has seen significant changes in the United States, chiefly because of policies adopted by President Donald Trump, not least during his second term in office. His administration has focused on enhancing domestic oil production and freeing up the energy sector, which may deeply impact oil prices and the energy market. Therefore, it is highly significant to review key policies adopted by the Trump administration and analyze their impact on oil prices and energy market trends.
Background
Donald Trump’s policies significantly impacted oil prices and the energy market during his first term in office, which materialized mainly through deregulation, boosting domestic production, and changes in international energy diplomacy. Some of his most important energy policies were as follows:
- Fossil Fuel Deregulation: Trump reversed many environmental regulations including those pertaining to methane emissions, offshore drilling, and coal-fired power plants. That provided a better ground for oil and gas companies to expand their operations. His administration allowed for drilling in deferral land and water, including such areas as the Arctic National Wildlife Refuge.
- National Oil Output Hike: Under Trump, the US grew into the largest oil producer in the world, mainly due to the shale oil boom. The US increased oil production and kept relatively oil prices unchanged due to a glut by American suppliers. The Trump administration’s support for the Keystone XL and Dakota Access pipelines facilitated oil and gas conveyance and bolstered production growth.
In total, enhanced oil production under the first term in office of Trump made up for supply disruptions caused by OPEC production cuts or geopolitical tensions, leading to lower oil prices. However, Trump’s foreign policy decisions like reinstating sanctions against Iran and Venezuela sent fluctuations into oil markets, which scaled back on their exports and put a strain on global supply. Trump constantly pressed the Organization of the Petroleum Exporting Countries (OPEC), in particular Saudi Arabia, to increase oil production to keep prices low. He mainly used his X account to influence market sentiments.
Furthermore, Trump has focused mainly on fossil fuels as his administration ignored the development of renewable energies. That slowed down the renewable sector’s growth.
Tariffs on solar panels, for example, have raised costs for the solar industry and hindered its expansion in the United States. In addition, Trump’s “America First” energy policy has emphasized energy independence and reduced dependence on foreign oil imports. However, the trade war with China and other countries has created uncertainty in global markets, affecting energy demand and investment.
Meanwhile, when the COVID-19 pandemic caused a historic collapse in oil demand and prices in 2020, the Trump administration’s response, including brokering the OPEC+ deal and buying the Strategic Petroleum Reserve (SPR), helped cushion the blow to US producers. Trump’s policies have had a mixed impact on oil prices and the energy market. While his administration has boosted US energy production and kept prices low, it has also contributed to market volatility and slowed the transition to renewable energy.
Future Outlook
Upon re-entering the White House a second time, Trump turned his attention to energy. In his first days in office, Trump signed several executive instructions aimed at speeding up the leasing process and issuance of permits for oil and gas projects. Accordingly, one of the key policies of Trump’s approach to energy is the repeal of regulations that restrict oil production on federal land and waters. Such a strong push for deregulation has revived oil exploration, particularly in areas that were previously restricted by the Biden administration. His administration is specifically focusing on regulations applicable to offshore and Alaskan lands to effectively boost domestic production. The deregulation has raised expectations for enhanced oil production. By facilitating faster processes for issuing drilling permits and leases, the Trump administration aims to create conditions that give oil companies the incentive to invest in and expand exploration and drilling operations.
At the same time, evidence suggests that US energy policies under Trump are aimed at enhancing production and preserving the US as the world’s largest oil producer. Naturally, increased US oil production and supply could put downward pressure on the price of black gold, especially when market conditions favor oversupply.
Although enhanced domestic oil production and supply to markets usually leads to lower prices, which benefits consumers, it may hurt producers who face shrinking profit margins. Furthermore, while enhanced U.S. production may bolster global supply, encourage competition, and possibly stabilize prices at a lower level, it may also incite geopolitical tensions, particularly about OPEC and other oil-producing countries.
On the other hand, while deregulation and enhanced production could provide cost benefits for the US, it may also raise concerns about environmental consequences. The push to reduce regulations threatens previous gains in reducing emissions, a balance that could get negative feedback from environmental groups and affect energy markets.
Mixed Consequences
Trump’s foreign policy stance will have a significant impact on energy prices. His withdrawal from various international agreements, including the Paris climate deal, signals a reduced commitment to global climate change initiatives that could change the course of energy and trade diplomacy. His approach to using sanctions, especially against countries like Iran, will also affect global oil supply forecasts. Any new sanctions could lead to more volatility in oil markets as they restrict the flow of oil and shift market conditions in favor of American producers.
In the meantime, focusing on strengthening energy alliances with countries seeking to reduce their dependence on Middle Eastern oil creates opportunities for US energy exports, and reinforces the idea of energy dominance in geopolitical contexts. While limiting the influence of traditional oil powers, this prioritization could help stabilize prices at levels that benefit US interests.
That said, the impact of Trump’s policies on oil prices and the energy market is multifaceted. While the Trump administration is trying to move the United States to a position of energy dominance by promoting an agenda focused on expanding fossil fuels and reducing regulatory barriers, it will face market shifts influenced by foreign policy and balancing environmental concerns with a significant increase in domestic production due to deregulation.
Shuaib Bahman
International Affairs Expert
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