To give an in-depth analysis of Trump’s tariff war, “Iran Petroleum” has interviewed Mohammad Sadeq Jokar, head of the Institute for International Energy Studies (IIES).
Donald Trump’s comeback to the White House raised controversy from the very beginning as he adopted specific decisions. What consequences do such changes have for other nations?
First and foremost, it is necessary to get a general image of the process of events and US communications and interaction with other nations to learn about the approach Trump is pursuing. Then, in this behavioral system, we can discuss Iran’s energy market and its impacts on it. Reviewing Republicans’ energy agenda, particularly Donald Trump’s views, one may notice that the US president is focused on two pivotal issues in the domestic energy sector: first, enjoying the abundant benefits of energy at home, as the driver of economic growth and prosperity. He believes that such massive energy resources have not been exploited for two reasons: international obligations, such as restrictions associated with climate change, and the US domestic decisions’ alignment with such regulations. Trump regularly criticizes Joe Biden in this regard for having accepted obligations that affect the US energy sector, including consumption and prices. Regarding low carbon emissions, Trump believes that, owing to technological progress, it would be possible to prevent harmful environmental impacts, i.e., carbon emissions. Therefore, he sees international regime-building in the energy sector as a policy limiting US technical and economic potential in the energy sector and weakening US national strength in its rivalry with China to get the top spot in the world. That was all about US domestic issues in the energy sector. When such a stream takes shape in this country, its success or failure would have international impacts. In case Trump manages to improve the trend of oil and gas production and even other fossil fuels like coal in the US, the market will be affected, either in terms of exports or reduced imports. Therefore, it would not be limited to the US domestically; rather, it would have international impacts.
Can Trump succeed in his plans?
In late March, an expert meeting was held in the US about whether or not Trump’s plans would bring about fundamental changes in the energy market or whether or not the development of drilling in the US would repeat the 2010-2020 growth for the 2025-2030 period. Many are doubtful for their reasons, including production cost, unstable planning, and the impact of Trump’s tariffs on falling global demand, and falling oil prices. Regarding the decline in global demand and falling oil prices, the impact would be negative due to the specific and technical nature of US resources. For instance, unlike conventional oil, shale oil has a highly elastic pricing system. The reason is that in conventional oil reserves, investment is done in advance for a 15-year production from a field. Therefore, short-term price volatility would not impact production. But as 80-85% of production from an unconventional well ends in the first year, it is necessary to keep drilling new wells regularly. For this reason, unconventional resources show a stronger reaction to oil price fluctuations. Meanwhile, Trump’s imposition of tariffs on other nations would bring down global demand. Finally, oil price hikes and falling global demand would lead to market oversupply, thereby posing a serious challenge to investment in the US. Therefore, doubts remain about the US production trend for the 2020-2030 period to experience any repetition of the 2010-2020 decade.
Can we make planning based on such forecasts and analyses?
Such analyses are made based on the present circumstances, but the key point is that the Trump Administration believes that it can bring to fruition a revolutionary growth in the oil sector in the US. Therefore, in an analytic scenario, it could be assumed that the US could keep growing as the Trump Administration is planning for the other aspect of its behavior in international marketing and market-making based on its oil and gas production growth. In other words, it assumes that it can have production while in the following step, it can make export planning for acquiring a market share to realize an output hike. Currently, he plans to allocate part of this output hike to domestic consumption and take advantage of energy abundance in favor of development and growth. Following this plan, he is making diplomatic market-making in various forms, but with a single specification. It would be interpreted as follows: Setting aside patterns born out of the market economy in the international arena in the energy sector. Applying diplomatic pressure and using politico-economic tools, Trump is changing a paradigm that rarely existed in the international domain. He promises to ease sanctions or tariffs in return for energy purchases from the US. It is framing a market with its own regulations. Therefore, diplomatic market-making has its aspects and frameworks. First of all, it has plans for all nations, including Iran, Russia, and even OPEC member states. That means it should have a plan for the coming years so that in case US oil production grows, it should have already chosen a destination for exporting surplus oil. Analysts may see Trump’s forecasts and plans as pure fantasy, but he believes that he is applying his plan for the entire world, and he has made direct and indirect plans, impacting a variety of sectors: from trading to pricing. Its proof may be seen in OPEC statistical data, OPEC+’s revised production plan, and acceptance of an oil supply hike, signs of Saudi-Russian cooperation in favor of the Trump Administration, and consequently, price falls. Under the former Administration of President Trump, the NOPEC draft was raised to counter OPEC as he deems it a cartel.
What solutions are available for producers and actors of the energy market?
Currently, a new framing has emerged in the international energy sector (fossil or renewable, even with a gradual and non-revolutionary view of energy transition), in which other producers, transit countries, and consumers are changing roles. Therefore, it is necessary for countries to first and foremost identify such framing and realize what is occurring to the global energy order, an order which was moving fast towards energy transition under Biden. In fact, in the Trump era, a new framing is emerging in which a rapid transition away from fossil fuels is no longer sought. According to a report recently published, given the discussions related to artificial intelligence (AI) and the need for electricity consumption in databases, the issue of using fossil fuels may be raised again more strongly than ever to provide sustainable and sufficient electricity they need. For example, in the US, due to the need for sustainable electricity production for databases, the issue of using coal-fired power plants has been raised until the sustainability of renewable electricity supply is resolved. The second step is for countries to know what role is envisaged for them in this new game, and the third is for actors to proactively redefine their roles in line with their capabilities and create scenarios for the space given to them.
Is a new scenario possible for Iran, too?
Countries whose international influence has decreased while being increasingly prone to impacts have no other choice but to either accept this situation or undertake a structural review of all economic, political, and energy governance dimensions domestically and seek to position their role in the international arena by building new capacities commensurate with emerging opportunities. Therefore, like many other countries, we should decide whether we want to passively accept the role that the Trump administration has assigned to us, or we first understand Trump’s approach and vision, and understand what he is looking for. In addition to strategic innovation and creativity, we can define a new role for ourselves by understanding our prominent position in the fossil fuel sector and also our standing on the issue of renewable resources, especially hydrogen and photovoltaics. With such a perspective, we can, in this new process, escape from the burden of the imposed role and turn our capabilities into reality by defining a new role. Otherwise, we will follow the path that is considered for us, because it is an undeniable fact that major actors who influence production, consumption, and processes in the fields of technology, energy economics, and the environment shape international regimes and impose them on others.
In light of Trump’s specific behavioral paradigm, is it possible to define ourselves a sustainable role based on our capacity?
Although we should not ignore the opportunities created by international grand plans, they are temporary opportunities that must be seized with urgency. If we are to achieve a sustainable presence based on our capabilities, we need to review our approaches, plans, and actions, especially in the area of domestic energy governance and its outcomes, and create opportunities abroad. In fact, opportunities are created, and even with all the limitations, when we can create these opportunities, they will no longer be dependent on the plans of international actors and will be more sustainable. With Donald Trump in office, undoubtedly there will be unintended opportunities, such as the fact that he has, in order to protect his own interests, not only reduced but even reversed the growing pressure against fossil fuels in favor of renewable energies. These opportunities can temporarily affect our plans and vision, but if we want to have an opportunity in a sustainable way and not turn global energy trends into an inherent threat to ourselves, we must have the same macro-strategic review. On the one hand, reviewing strategies, action plans, governance processes, energy interactions within the country, both direct and indirect, including pricing and supply and demand, as well as behavioral economics and social capital, as well as reviewing behaviors and actions in the international arena. In this way, we can find sustainable opportunities for ourselves from ongoing events.
What are examples of opportunities in our energy diplomacy?
The Ministry of Petroleum has two major strategic obligations: first, ensuring energy security in domestic consumption from households to industry, and second, discussing the export market share that can turn export income into an economic driver. That means creating financial resources for domestic development and providing security by increasing the country’s energy share in international markets. With this mindset, it is necessary for us to take action in both domestic and international sectors. In the meantime, the issue that is very promising is first the decision-making will of the 14th administration, especially the president himself that creates a bright spot. Such a will, by spreading to other government bodies, can lead to fundamental and major decisions. Then come the processes related to overcoming the stumbling blocks in international issues, the outlook of which shows that the Americans have concluded that any escalation of the tense atmosphere that the US has created against Iran should be eased and that settlement should be sought instead so that finally the interaction with the Islamic Republic’s interests being respected. The third promising point is that, on a rare occasion in the energy sector, a technocratic approach based on planning and confidence in the academic and specialized sector has emerged in the petroleum industry, whose results were seen even in the second half of last calendar year. This issue is very valuable and can be seen as a window of hope. This trio may create significant potential for creating opportunities; even if we ignore the issue of lifting sanctions, we can still achieve opportunity creation by boldly making decisions at the presidential and heads of state levels, and by utilizing the expertise of a team of experts who thoroughly know the petroleum industry.
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