While there are numerous adjectives that may be used to describe Donald Trump, predictable is certainly not one of them.
This has been borne out by his on-off trade war with China, the EU, Canada and Mexico, which has gathered momentum recently has Trump has slapped numerous tariffs on a variety of exports. At the heart of this are levies of 25% and 10% on steel and aluminium respectively, which have underpinned an estimated 60 billion worth of tariffs on China alone.
In this post, we’ll look at these tariffs in close detail, while asking what impact this is likely to have on the oil industry.
Trump vs. Oil and Gas – The Story so far
After a period of reflection, Trump has redoubled his efforts to initiate a trade war by targeting the European Union and NAFTA. This has been met with vociferous opposition of by key stakeholders in the oil and gas industries, while compelling some to call for exemptions across a number of sectors.
While some may champion Trump’s protectionist outlook (this, after all, was a key premise on which he campaigned), there’s no doubt that a trade war could impact every aspect of the oil industry.
It would certainly disrupt the market’s complex supply chain, which includes everything from pipelines and platforms to drilling rigs and processing facilities, compromising future energy projects and potential issues pertaining to supply and demand.
How Would this Impact on Prices?
Increased steel tariffs, both in the U.S. and throughout the Western world, would be most likely to delay the completion of energy projects, while also minimising and restricting the scope of others. In this instance, we’d almost certainly see a diminished supply of oil over a sustained period of time, which in turn would lead to a disproportionate increase in prices in the market.
This issue would be particularly prevalent in the U.S., particularly with North America striving to ramp up oil production under Trump and much of the specialised steel used to construct pipelines not manufactured domestically.
Even by President Trump’s standards, this represents contradictory and short-term thinking, as there is little point in protectionist policies if they harm your own economy and workforce. As anyone who has ever leveraged a demo trading account can also testify, rising oil prices are likely generate interest among investors, although the longer-term volatility may cause those with a risk-averse outlook to turn away from the market.
Above all else, Trump is also risking alienating an industry that has typically supported him during his premiership. This clearly represents a questionable move, while any damage is likely to be
compounded if Trump’s tariffs have a negative impact on economic output in the U.S.
