Why Trump continues to surprise global oil markets

Global oil and gas markets are currently under Trump’s influence. FILE PHOTO | NMG 

By GEORGE WACHIRA

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Summary

• Recent price movements can be directly or indirectly attributed to the US leader’s actions.

US President Donald Trump has been shaking the world out of its normally stable and predictable order and this is disorienting global politics, diplomacy, trade, and even oil markets. The recent movements of oil prices can be directly or indirectly attributable to Trump’s decisions and actions. In the past fortnight, prices have moved to nearly $80 and then suddenly down to near $70.

When earlier this year US unilaterally withdrew from the Iranian nuclear deal, Trump intended to bring Iran to its knees by curtailing its oil exports “to zero”. Already three high oil demands US allies-Japan, South Korea and India- which import oil from Iran, have indicated plans for alternative sourcing.

Other importers around the world and investors are cutting their Iranian trade links due to secondary US sanctions which target financial systems, banking, and shipping associated with Iranian transactions. They are calling it the “Iranian Risk”

China, a sympathizer of Iran, has indicated that it will maximize imports of Iranian oil and may reduce imports of US oil by imposing a 25 per cent tariff on US oil imports. It is a retaliatory spat, in the context of the ongoing US/China trade wars.

It is estimated that a net global supply shortfall of about 2 million barrels per day will be experienced as a result of Iranian sanctions. Trump is however cautious to avoid a global oil crisis and high prices that would be negatively attributable to his unilateral actions on Iran

That is why he has been on high level diplomacy to persuade other oil producers to step up production to fill the void, and he seems to be succeeding with the prices easing downwards. The Organisation of the Petroleum Exporting Countries (Opec) and Russia will pump more oil as Trump readies to release oil from the US national strategic oil reserves should the need arise.

Iran is certainly feeling cornered and has stated that it will not stand back and watch other gulf countries export their oil through the Strait of Hormuz while it exports nothing. This is a veiled threat that could trigger confrontations with serious oil supply and price implications. The strait is a narrow passage between Iranian and Emirates coastlines-countries not on good political terms.

I think we are currently sufficiently protected by Trump against high increases. He has a vested political interest to ensure that oil prices remain low, lest the Iranian issue be directly blamed for precipitating a supply/price crisis. However, if a physical confrontation between US and Iran flares up, oil prices will spike to over $100, which is not good for global economies including Kenya.

Turning to US/Russian oil connections, when Russia annexed Crimea in 2014, President Obama imposed economic sanctions against Russia. The US sanctions suspended financing and provision of technology for development projects in support of oil and gas exploration and production for deepwater , Arctic offshore , or shale projects that have the potential to produce oil in Russia.

READ: Oil price surge signals pain for consumers

Among projects frozen by Obama in 2014 is a massive deal signed between ExxonMobil and Russia to provide capital and technology to develop Russian Arctic hydrocarbon resources.

It is most likely that lifting of the Obama sanctions to allow US capital back into Russian oil and gas was discussed by Trump and Putin in Finland last week. Oil and gas is the mainstay of the Russian economy, contributing about 70 per cent of its exports and about 50 per cent of budgeted revenues.

When in 2014 Ukraine restricted transit of Russian gas exports to Europe through its territory, Germany and Russia started construction of the alternative Nord Stream gas pipeline from Russia to Germany through the Baltic Sea. This line will be operational next year.

Simultaneously, the US has been expanding capacity to export Liquefied Natural Gas (LNG) from their shale resources to Europe to benefit from shortfalls created by the Ukrainian crisis. The altercation last week between Trump and Angela Merkel was mainly attributable to the Nord Stream gas pipeline which will frustrate US gas exports into Europe.

Yes, global oil and gas markets are currently under Trump’s influence, shifting the oil price narrative from the familiar geo-factors.