Yves here. We are sure to see more articles along these lines, with more refined analyses, as the details of Trump energy sanctions emerge. This piece is still helpful as an early quick take.

Some minor issues: we recently published another OilPrice piece that argued that Trump’s “Drill, baby, drill” won’t get as far as the Administration like because the shale industry is being careful, as in return-conscious, about making investments.

Similarly, the author gets harrumph-y about China “violating” US sanctions on Iran. UN energy and financial sanctions on Iran (ex weapons sales, those expired in 2020) were lifted in 2016 as part of the JCPOA. The US exiting the JCOPA did not restore UN sanctions; the US instead imposed its own. Only UN sanctions are legal under international law. So China is within its rights to thumb its nose at these US sanctions, although it is at risk, as with US and EU sanctions against Russia, of having its banks targeted with secondary sanctions.

By Felicity Bradstock, a freelance writer specialising in Energy and Finance. Originally published at OilPrice

  • Trump’s second term is likely to see a return to stricter energy sanctions on Iran, Venezuela, and Russia.
  • The US is in a strong position to enforce sanctions due to record-high oil and gas production.
  • Stricter sanctions could disrupt global oil markets, increase geopolitical tensions, and prompt retaliation from China.

The U.S. continues to uphold sanctions on several countries including Iran, Venezuela, and Russia. While the Biden administration eased sanctions on Venezuelan energy at the beginning of the year, and Iran has been able to increasingly circumvent sanctions, there was no clear path to bringing the sanctions to a total stop. Now, with the election of Donald Trump as President for a second non-consecutive term, U.S. energy sanctions could become stricter as he focuses on boosting domestic oil and gas output and strengthening controls on these countries.

On his campaign trail, Trump repeatedly vowed to impose stricter sanctions on Iranian and Venezuelan crude, which could lead to a decrease in the global oil supply and drive up prices. “Conceptually, the impact of a potential second Trump term on oil prices is ambiguous, with some short-term downside risk to Iran oil supply … and thus upside price risk,” Goldman Sachs commodities analysts wrote in a research note. “But medium-term downside risk to oil demand and thus oil prices from downside risk to global GDP from a potential escalation in trade tensions.”

Having often shouted the phrase “drill baby, drill” at his rallies, Trump is expected to double down on his support for U.S. oil and gas production. The uncertainty over new licenses seen during Biden’s term in office will be a thing of the past, as oil and gas companies pursue more exploration activities to maintain their record levels of crude and gas output. The U.S. is the world’s biggest oil producer, contributing 22 percent of the world’s crude, according to the Energy Information Administration (EIA).

While oil and gas output was growing to record highs under Biden, restrictions were also eased on energy from sanctioned countries, such as Iran and Venezuela. Iran is now producing around 3.5 million bpd of crude and exporting 1.8 million bpd, despite the continued sanctions. This is a significant increase from the amount being produced when Trump was in power, which fell to an official low of around 400,000 bpd under his previous administration’s “maximum pressure” campaign.

We are already starting to see a change in the trend with Iranian oil, with exports falling due to the complex geopolitical situation in the Middle East. Iran’s exports are expected to decrease even further under the new Trump administration as the stricter imposition of sanctions is to be expected. This week, Trump selected U.S. Senator Marco Rubio – who has long pushed for a tougher U.S. policy on Iran and China – as secretary of state for his new government. Bob McNally, the president of Rapidan Energy, stated, “Senator Rubio has a consistent and strong record as a hawk on Iran, Venezuela, and China.” McNally added that Rubio will “zealously implement President-elect Trump’s plans to exert pressure on Iran’s crude exports, nearly all which go to China”.

China has increased its import of discounted energy supplies from U.S.-sanctioned countries, including Iran, Venezuela and Russia, by blatantly circumventing sanctions in recent years. China has used special routes, ghost tankers, and other clandestine tactics to increase its imports of crude from these countries, and, as sanctions have loosened, it has imported oil and gas via more conventional routes.

Russia overtook Saudi Arabia to become China’s biggest crude supplier in 2023, shipping 2.14 million barrels per day of oil to the Asian giant. China also reported importing 11 percent more crude from Iran in the first three months of 2024 than during the same period in 2023. This could present an issue as Trump attempts to impose stricter sanctions, potentially prompting China to retaliate if its energy supplies are disrupted.

Nevertheless, Trump has doubled down on his plans for stricter sanctions on all three countries. In October, Venezuela’s oil exports rose to 950,000 barrels per day, a four-year high. However, Jose Cardenas, Washington strategic consultant and lobbyist, explained, “Revoking the oil licenses would send a powerful signal to not only Maduro, the opposition, the EU, and others that the U.S. is serious about a democratic transition taking place in Venezuela.” Any move to further strengthen sanctions on Venezuela would likely push the South American country closer to Iran and China, which could cause geopolitical tensions for the U.S. and its allies.

When it comes to Russia, Ian Bremmer, the president of political risk consultancy Eurasia Group, said, “What I am hearing from Trump advisors is that Trump would be prepared to put much tougher sanctions against them,” if Russia rejects a peace deal. As the U.S. has increased its natural gas output significantly over the last few years, and its allies have secured alternative gas supplies, it leaves Trump in a strong position to enforce strict sanctions on Russian energy.

Based on what Trump said during his campaign trail and the people that he is appointing to key government positions, it seems likely that he will impose stricter energy sanctions on Iran, Venezuela, and Russia when he takes office. The U.S. is in a strong position to do this as its oil and gas output stands at an all-time high. However, stricter sanctions could lead China to retaliate, as its energy supply chains become disrupted. It could also encourage Venezuela and Iran to deepen their ties with one another, thereby creating greater geopolitical unrest.

This entry was posted in China, Economic fundamentals, Energy markets, Free markets and their discontents, Globalization, Politics on by Yves Smith.