Oil prices climb despite Trump moves to temper market – Axios
Global oil prices have continued their upward trajectory, defying persistent efforts by the Trump administration to temper the market. This persistent climb reflects a complex interplay of geopolitical tensions, supply-side constraints, and robust demand, impacting economies worldwide from 2017 through early 2020. The White House's strategy, primarily focused on pressuring OPEC and sanctioning adversaries, struggled to consistently achieve its desired outcome of lower crude prices.
Background: A Market in Flux
The period leading up to and during the initial years of the Trump administration saw the global oil market navigate a series of profound shifts. From the dramatic price collapse of 2014-2016 to the emergence of the United States as a dominant producer, the landscape was ripe for volatility, setting the stage for the challenges the administration would face.
A Decade of Volatility
The global oil market entered the late 2010s still reeling from the dramatic price swings of the preceding decade. Following the peak of nearly $150 per barrel in July 2008, prices crashed during the Great Recession, only to recover steadily in the early 2010s, largely due to robust demand from emerging economies and geopolitical supply concerns. However, a seismic shift occurred between mid-2014 and early 2016. Crude oil prices plummeted from over $100 per barrel to below $30, driven by a confluence of factors: surging U.S. shale production, weakening global demand, and OPEC's decision to maintain high output levels in an attempt to retain market share against rising non-OPEC supply. This crash severely impacted oil-dependent economies and energy companies globally, leading to significant industry restructuring, bankruptcies, and job losses. The subsequent recovery, beginning in early 2016, was tentative, primarily bolstered by the formation of the OPEC+ alliance and their coordinated production cuts.
The Shale Revolution’s Rise
Perhaps the most transformative development in the global energy landscape of the 21st century has been the U.S. shale revolution. Advances in hydraulic fracturing and horizontal drilling technologies unlocked vast reserves of oil and natural gas previously deemed uneconomical. This technological breakthrough propelled the United States from a declining oil producer and major importer to the world's largest crude oil producer by 2018, surpassing both Saudi Arabia and Russia. Production from key basins like the Permian in Texas and New Mexico, the Bakken in North Dakota, and the Eagle Ford in South Texas surged from approximately 5 million barrels per day (mbpd) in 2008 to over 12 mbpd by late 2019. This dramatic increase in domestic supply significantly altered global energy security dynamics, reduced U.S. reliance on foreign oil, and exerted downward pressure on international prices. However, the growth also created infrastructure bottlenecks, particularly for pipeline capacity, which at times constrained the ability to bring new supply to market efficiently.
OPEC’s Evolving Role
The Organization of the Petroleum Exporting Countries (OPEC), historically the dominant force in setting global oil prices, found its influence challenged by the U.S. shale boom. For decades, OPEC, led by Saudi Arabia, acted as the swing producer, adjusting output to balance supply and demand. The shale revolution, however, introduced a new, agile, and less controllable supply source. In response to the 2014-2016 price crash, OPEC, recognizing the need for broader cooperation, forged an alliance with several non-OPEC producers, most notably Russia, forming the "OPEC+" group in late 2016. This expanded coalition aimed to collectively manage supply to stabilize prices. Their initial agreement to cut 1.8 mbpd of production from January 2017 was instrumental in the price recovery that followed. However, the alliance's internal dynamics were complex, often characterized by differing national interests, particularly between Saudi Arabia and Iran, and the evolving relationship with Russia.
Geopolitical Flashpoints Pre-Trump
The Middle East and other oil-rich regions remained sources of significant geopolitical instability even before the Trump administration took office. The Syrian civil war, which began in 2011, destabilized a crucial crossroads in the region and led to the rise of ISIS, impacting oil infrastructure and trade routes. Libya, following the 2011 overthrow of Muammar Gaddafi, descended into civil conflict, causing its oil production to fluctuate wildly and often remain well below its potential. Yemen's civil war, escalating in 2014-2015 with Saudi Arabian intervention, added another layer of regional tension, threatening shipping lanes in the Bab el-Mandeb strait. Furthermore, the 2015 Joint Comprehensive Plan of Action (JCPOA), or Iran nuclear deal, had provided a temporary reprieve from severe sanctions on Iran's oil exports. However, the deal remained contentious, particularly in the United States and among some Gulf Arab states, setting the stage for potential future disruptions if it were to unravel. These existing flashpoints created a fragile environment where any new political or security development could swiftly impact oil supply and market sentiment.
Trump Administration’s Inauguration (2017)
When Donald Trump assumed the presidency in January 2017, the oil market was in a state of cautious recovery. Brent crude was trading in the mid-$50s per barrel, supported by the OPEC+ production cuts. The new administration immediately signaled a shift towards an "America First" energy policy, prioritizing domestic oil and gas production, deregulation, and energy independence. While the initial focus was on boosting U.S. output, the administration's broader foreign policy objectives, particularly regarding Iran and Venezuela, and its approach to international trade, would soon become major drivers of global oil price volatility. The stated goal was often to keep gasoline prices low for American consumers, a key political objective. However, the methods employed, especially the use of sanctions, frequently had the unintended consequence of pushing prices higher, creating a tension between the administration's stated aims and market realities.
Key Developments Driving Price Climbs
The Trump administration's tenure coincided with several pivotal developments that directly influenced global oil prices. From the re-imposition of sanctions on major producers to persistent geopolitical tensions, these events created a volatile environment that often countered the White House's stated desire for lower energy costs.
Re-imposition of Iran Sanctions (2018)
One of the most impactful decisions of the Trump administration on the oil market was its withdrawal from the Joint Comprehensive Plan of Action (JCPOA) on May 8, 2018. The JCPOA, signed in 2015, had provided Iran with significant sanctions relief, allowing its oil exports to rebound from under 1 mbpd to approximately 2.5 mbpd by early 2018. The Trump administration deemed the deal "flawed" and "insufficient" to curb Iran's broader malign activities in the region and its ballistic missile program. Following the withdrawal, the U.S. Treasury Department announced a phased re-imposition of sanctions, with the most severe targeting Iran's energy, shipping, and financial sectors coming into full effect in November 2018.
This move immediately sent shockwaves through the oil market. Analysts estimated that Iran's exports could drop by 1 to 1.5 mbpd, representing a significant loss of global supply. Brent crude prices, which had been in the low $70s, surged towards $80 per barrel by October 2018. To prevent an immediate and severe price spike that could harm global economies and U.S. consumers, the administration granted temporary waivers to eight major importers of Iranian crude: China, India, Japan, South Korea, Turkey, Italy, Greece, and Taiwan. These waivers allowed them to continue purchasing limited volumes of Iranian oil for a six-month period.
However, the administration's policy tightened further when these waivers expired on May 2, 2019. Secretary of State Mike Pompeo announced that the U.S. would no longer issue any waivers, aiming to bring Iran's oil exports to "zero." This "maximum pressure" campaign intensified market fears of supply shortages, pushing Brent crude to nearly $75 per barrel in April 2019. While some Iranian oil continued to reach markets through illicit channels, official exports plummeted to below 0.5 mbpd, drastically reducing global supply and contributing to upward price pressure. The sanctions also exacerbated economic hardship within Iran, leading to currency devaluation and internal unrest.
Venezuela’s Production Collapse
Venezuela, a founding member of OPEC and once a top-five global oil exporter, experienced a catastrophic decline in its crude production during this period, acting as another significant bullish factor for oil prices. Decades of underinvestment, mismanagement, corruption, and a brain drain under the socialist governments of Hugo Chávez and Nicolás Maduro had severely eroded the capacity of its state-owned oil company, PDVSA. Production, which stood at over 2.5 mbpd in the early 2000s, had already fallen to around 1.3 mbpd by the end of 2017.
The crisis deepened significantly in 2018 and 2019 amidst hyperinflation, widespread shortages of food and medicine, and a mass exodus of its population. The Trump administration further exacerbated Venezuela's oil woes by imposing increasingly stringent sanctions. In January 2019, the U.S. Treasury Department announced sanctions targeting PDVSA, effectively blocking U.S. entities from doing business with the company and freezing its assets in the U.S. This move was intended to cut off funding to the Maduro regime and support opposition leader Juan Guaidó.
The impact was immediate and devastating. Venezuela's production, which predominantly consists of heavy crude, a valuable feedstock for many refineries, plummeted further. By mid-2019, output had fallen to well below 0.7 mbpd, and by the end of the year, it was closer to 0.5 mbpd, representing a loss of over 2 mbpd from its historical highs. The loss of Venezuela's heavy crude was particularly challenging for U.S. Gulf Coast refineries, which are configured to process such grades and had to seek alternative supplies from Canada or the Middle East. This significant and sustained loss of supply from a major producer provided a strong upward impetus for global oil prices, particularly for heavier crude benchmarks.
Trump’s Public Appeals to OPEC
Despite the administration's own policies contributing to supply reductions, President Trump frequently and publicly expressed his desire for lower oil prices, often directly appealing to OPEC to increase production. These appeals, often delivered via Twitter, aimed to pressure Saudi Arabia and other Gulf allies to offset supply losses from Iran and Venezuela.
Throughout 2018 and 2019, a recurring theme in Trump's tweets was the call for OPEC to "relax and take it easy" on production cuts and to "open the spigots." For instance, in June 2018, as prices climbed, he tweeted, "Hope OPEC will increase output substantially. Need to keep prices down!" Similar messages followed, reflecting his concern over rising gasoline prices impacting American consumers and the broader economy.
OPEC's response was often mixed and complex. While Saudi Arabia, the de facto leader of OPEC, generally aimed to maintain stable markets and was responsive to U.S. concerns, it also had to balance its own revenue needs and the cohesion of the OPEC+ alliance. The Kingdom did, at times, increase its output to help compensate for Iranian and Venezuelan shortfalls. For example, Saudi production briefly surged above 11 mbpd in late 2018. However, OPEC's decisions were also influenced by internal disagreements, particularly with Iran and other members who favored higher prices, and by the evolving global demand picture. The public nature of Trump's demands, while aiming to influence the market, sometimes created diplomatic friction and highlighted the limits of U.S. leverage over sovereign oil-producing nations.
Saudi Arabia’s Production Strategy
Saudi Arabia's role as the world's largest oil exporter and OPEC's swing producer made its production strategy central to global oil prices during this period. The Kingdom faced a delicate balancing act: maintaining market stability, maximizing its own revenue, managing its relationship with the United States, and ensuring the cohesion of the OPEC+ alliance.
In response to the 2014-2016 price crash, Saudi Arabia was instrumental in forging the OPEC+ agreement, committing to significant production cuts. As prices began to recover and the U.S. reimposed sanctions on Iran in 2018, Riyadh initially increased its output to help prevent a severe supply crunch. Production rose from around 10 mbpd in early 2018 to over 11 mbpd by November of that year, demonstrating its capacity and willingness to act as a stabilizer.
However, as global demand growth showed signs of slowing down in late 2018 and early 2019, coupled with continued strong U.S. shale growth, Saudi Arabia once again shifted its strategy. Fearing an oversupplied market and a renewed price downturn, it spearheaded another round of OPEC+ production cuts, committing to substantial reductions itself. This move, while aimed at supporting prices, sometimes ran counter to President Trump's explicit calls for increased output.
Adding another layer of complexity was the Kingdom's ambitious plan to list shares of its national oil company, Saudi Aramco, on the stock market. A successful initial public offering (IPO) depended on a favorable market valuation, which was directly linked to oil prices. Higher prices were generally seen as beneficial for the IPO, creating an incentive for Saudi Arabia to support the market through production management. This strategic consideration often influenced its decisions regarding output levels, occasionally placing it at odds with U.S. consumer interests.
Global Demand Resilience (Pre-COVID)
Despite geopolitical headwinds and trade tensions, global oil demand demonstrated remarkable resilience through much of 2017 and 2018, providing a fundamental underpinning for higher prices before the unprecedented shock of the COVID-19 pandemic in early 2020. This robust demand growth helped absorb some of the increased supply from U.S. shale and contributed to the market's upward trajectory.
Strong global economic growth, particularly in emerging markets, was a primary driver. China and India, the world's two most populous nations, continued to be engines of demand, fueled by industrial expansion, urbanization, and a growing middle class that increased vehicle ownership and air travel. India's demand growth, in particular, was consistently strong, often surpassing that of China in percentage terms. Southeast Asian economies also contributed significantly to the overall increase in consumption.
The International Energy Agency (IEA) and other forecasting bodies consistently projected demand growth of around 1.2 to 1.5 mbpd annually during this period. This growth was driven by continued reliance on fossil fuels for transportation (gasoline, diesel, jet fuel), petrochemical feedstocks, and industrial power generation. While there were growing discussions about the long-term energy transition towards renewables and electric vehicles, their impact on immediate oil demand remained relatively minor.
However, signs of demand deceleration began to emerge in late 2019, primarily due to the escalating U.S.-China trade war. Tariffs and trade uncertainty started to weigh on global manufacturing and economic activity, leading to downward revisions in demand forecasts. This nascent slowdown, coupled with continued strong non-OPEC supply, set the stage for a more challenging market environment just before the global health crisis hit.
Strategic Petroleum Reserve (SPR) Discussions
Amidst rising oil prices and concerns about supply disruptions, the Trump administration periodically considered and discussed the potential use of the U.S. Strategic Petroleum Reserve (SPR) as a tool to temper the market. The SPR, established after the 1973-74 oil embargo, holds vast quantities of crude oil in underground salt caverns along the Texas and Louisiana coasts, intended for emergency use in severe supply shortages.
Discussions about releasing SPR oil typically surfaced when Brent crude approached or exceeded $80 per barrel, and gasoline prices at the pump were noticeably climbing. The rationale was that a release of crude from the SPR would increase immediate supply to the market, thereby putting downward pressure on prices. For instance, in September 2018, as Iran sanctions loomed and prices rose, reports indicated that the administration was considering an SPR release.
However, actual large-scale releases from the SPR during this specific period to intentionally influence market prices were limited. The primary triggers for major SPR drawdowns are typically severe weather events (like hurricanes impacting Gulf Coast production) or major geopolitical supply disruptions. While the threat or discussion of an SPR release could sometimes have a psychological impact on the market, signaling the administration's resolve to keep prices in check, it was not frequently deployed as a direct market intervention tool to combat price climbs driven by its own sanctions policies. The administration largely preferred to pressure OPEC for increased production rather than deplete a strategic national asset.
Other Supply Disruptions
Beyond the major impacts of Iran sanctions and Venezuela's collapse, several smaller, yet cumulatively significant, supply disruptions contributed to the upward pressure on oil prices during the Trump administration's early years. These localized outages, often driven by civil unrest, militant activity, or natural events, added to market tightness and uncertainty.
Libya remained a persistent flashpoint. Its civil conflict, which intensified at various points, frequently disrupted oil production and exports. Control over key oil fields and export terminals often shifted between warring factions, leading to unpredictable supply fluctuations. At times, Libyan output, which had the potential to exceed 1 mbpd, would drop by several hundred thousand barrels per day due to blockades or attacks on infrastructure, adding volatility to the Mediterranean crude market.
Nigeria, Africa's largest oil producer, also faced intermittent disruptions from militant groups in the Niger Delta. Attacks on pipelines, flow stations, and export terminals, driven by demands for greater resource control and economic grievances, led to periodic output reductions. While often localized, these disruptions could remove hundreds of thousands of barrels from the market for weeks or months, contributing to global supply concerns.
Furthermore, routine maintenance work in mature oil provinces, such as the North Sea, could temporarily reduce output from key fields. While typically planned, unexpected technical issues could extend these outages. Natural events, though less frequent, also played a role. For instance, severe hurricanes in the U.S. Gulf of Mexico could temporarily shut down offshore production platforms and refineries, impacting both crude supply and refined product availability. While individually these events might not dramatically alter global balances, their cumulative effect, especially when combined with the larger structural supply losses from Iran and Venezuela, contributed to a tighter market and made it more challenging for the Trump administration to achieve its goal of consistently lower oil prices.
Impact: Who is Affected
The sustained climb in oil prices, despite the Trump administration's efforts, had far-reaching implications, touching consumers, businesses, national economies, and geopolitical relationships across the globe. The ripple effects were felt from the gas pump to corporate balance sheets and international diplomatic tables.
Consumer Costs
The most immediate and tangible impact of rising crude oil prices was felt by consumers through higher gasoline and diesel prices at the pump. Gasoline, being a highly visible and frequently purchased commodity, directly affects household budgets and consumer sentiment. As crude oil prices increased, the cost of refined products, which typically track crude prices with a lag, followed suit.
In the United States, average national gasoline prices, which had been around $2.30 per gallon in early 2017, steadily climbed, reaching over $2.90 per gallon by mid-2018 and approaching $3.00 in some regions. While these levels were still below the peaks of the early 2010s, the consistent upward trend represented a noticeable increase in transportation costs for millions of American households. For families with multiple vehicles or long commutes, this translated into hundreds of dollars in additional annual expenses, effectively reducing their disposable income.
Beyond the U.S., consumers in import-dependent nations, particularly in Europe and Asia, often faced even steeper price increases due to higher taxes on fuel and currency exchange rates. In countries like India, where the government frequently subsidizes fuel, rising international prices put immense strain on national budgets, sometimes leading to painful subsidy cuts that further burdened consumers. The increased cost of fuel also indirectly impacted consumer prices for other goods and services, as businesses passed on their higher transportation and production costs, contributing to broader inflationary pressures.
Business and Industry
Rising oil prices significantly impacted various business sectors, particularly those with high energy consumption or reliance on petroleum-derived products. These industries faced increased operational costs, which could erode profit margins, influence investment decisions, and ultimately affect pricing for their customers.
The airline industry was among the most vulnerable. Jet fuel typically represents 20-30% of an airline's operating expenses. As crude prices rose, so did jet fuel costs, directly impacting airline profitability. Major carriers often attempted to mitigate these costs through fuel hedging strategies or by imposing fuel surcharges on tickets, but sustained price increases could still lead to reduced margins, deferred fleet upgrades, and even route cancellations. The International Air Transport Association (IATA) frequently revised down its profit forecasts for the industry during periods of high oil prices.
The shipping industry also bore a substantial burden. Bunker fuel, used by cargo ships, saw its prices climb, increasing the cost of global trade. This had a ripple effect across supply chains, as freight companies passed on higher costs to manufacturers, retailers, and ultimately consumers. Container shipping lines, bulk carriers, and tanker operators all faced higher operational expenditures.
Manufacturing sectors, particularly those reliant on petroleum as a feedstock or energy source, experienced increased input costs. Industries producing plastics, chemicals, fertilizers, and synthetic fibers saw their raw material expenses rise. This could lead to higher production costs for a vast array of consumer goods, from packaging to apparel.
Even the agricultural sector was affected, with higher fuel costs for farm machinery and increased prices for petroleum-derived fertilizers and pesticides. This could translate into higher food production costs, potentially contributing to food inflation. In essence, almost every sector of the economy felt the pressure of higher energy prices, directly or indirectly.
Inflationary Pressures
The sustained climb in oil prices served as a significant contributor to broader inflationary pressures within economies worldwide. Energy costs are a fundamental input for almost all goods and services, and their increase can ripple through the entire economic system.
When crude oil prices rise, the cost of transportation, manufacturing, and heating/cooling increases. Businesses, facing higher operational expenses, often pass these costs on to consumers in the form of higher prices for goods and services. This contributes to headline inflation figures, which are closely watched by central banks. For example, if the cost of gasoline rises, it directly impacts the consumer price index (CPI), a key measure of inflation.
Central banks, such as the U.S. Federal Reserve, monitor inflation closely to maintain price stability. Persistent energy-driven inflation can complicate monetary policy decisions. If inflation rises above target levels due to oil prices, central banks might be compelled to raise interest rates to cool down the economy and curb inflationary expectations. Such interest rate hikes can slow economic growth, increase borrowing costs for businesses and consumers, and potentially trigger concerns about recession.
Moreover, rising energy costs can lead to demands for higher wages, as workers seek to maintain their purchasing power. This can create a wage-price spiral, further entrenching inflationary trends. While core inflation, which excludes volatile food and energy prices, might remain stable, headline inflation driven by oil can still significantly impact public perception, consumer confidence, and political discourse. The Trump administration's focus on economic growth and low interest rates was frequently challenged by the inflationary impulse from rising energy prices.
Geopolitical Ramifications
The dynamics of rising oil prices had profound geopolitical ramifications, altering power balances, intensifying regional rivalries, and complicating international diplomacy. The economic leverage of oil-exporting nations increased, while import-dependent countries faced new vulnerabilities.
For oil-exporting nations, particularly those in OPEC and Russia, higher prices meant increased revenue, bolstering their state coffers and providing greater financial flexibility. This enhanced their ability to fund domestic programs, project influence abroad, and withstand economic pressures. For Saudi Arabia, higher prices supported its Vision 2030 economic diversification plan and provided a stronger valuation for the Saudi Aramco IPO. Russia, heavily reliant on oil and gas revenues, benefited from increased earnings that could be used to fund military modernization and geopolitical initiatives.
Conversely, oil-importing nations, including the United States, Europe, China, and India, faced increased energy import bills. This could lead to current account deficits, currency depreciation, and greater economic vulnerability. The Trump administration's "America First" stance was often at odds with its desire for lower oil prices, as its sanctions against Iran and Venezuela directly contributed to market tightness, creating friction with allies who were also impacted by higher costs.
The Middle East remained a critical flashpoint. U.S. sanctions on Iran, while aiming to curb its regional influence, also heightened tensions in the Persian Gulf, leading to attacks on oil tankers and Saudi oil infrastructure (e.g., the September 2019 drone attacks on Abqaiq and Khurais). These incidents underscored the fragility of global oil supply lines and the potential for severe disruptions. The scramble for alternative supplies and the political maneuvering between producers and consumers further strained international relations, making energy security a central theme in diplomatic engagements.
US Domestic Oil Production
While rising oil prices posed challenges for consumers and certain industries, they presented a significant boon for the U.S. domestic oil and gas industry, particularly the burgeoning shale sector. Higher crude prices made drilling and extraction more profitable, stimulating investment, production growth, and job creation.
The Permian Basin in West Texas and New Mexico, the Bakken in North Dakota, and the Eagle Ford in South Texas experienced a renewed surge in activity. As Brent crude climbed from the $50s to the $70s and $80s per barrel, U.S. shale producers, known for their relatively short investment cycles, ramped up drilling rigs and brought new wells online at a rapid