The fourth hit to the oil markets hasn’t quite landed yet: Iran. The Trump administration is pressuring, well, everyone, to eliminate their imports of Iranian crude by November. The expectation is for a two-thirds reduction in total exports. Countries that resist American pressure will find themselves subject to secondary sanctions
that would bar their access to anything that touches the U.S. banking system. Since that is in essence anything that involves nouns it is sort of a big deal. The Indians and Japanese have already signaled they’re going to play ball, and the Europeans are rapidly coming around. That just leaves China.
While the pot-stirrer in me would love
to see what would happen to a trade-dependent internationally-wired oil-importing economy like China’s under full financial embargo, I’m fairly sure the Chinese will blink on this one. Financial sanctions of the type the White House is preparing would hit China at least an order of magnitude harder than the tariffs they are staring down, and the Chinese are not suicidal. And while I firmly stand by my claim that no one can really claim to know what Trump is thinking I have to admit things are starting to look more than coincidental: a last-minute cave by the Chinese on Iran just as the third round of tit-for-tat tariffs really start to bite? I see some serious negotiating leverage there, useful in many theaters.
This – all
of this – is quite possibly the best-case environment for U.S. shale oil producers. Chronic export outages in multiple countries for multiple reasons, a trade war that is both widening and deepening. All this pushes oil prices up. That helps whichever oil producers can bring new output online fastest. And with today’s shale tech American shale operators can bring on new
oil output in half the time the Saudis can bring on their pre-existing
In the first half of 2018, before
all this noise erupted, U.S. shale operators were already on course for increasing total U.S. oil output by the largest volume ever
– in excess of a fresh 1.5 million bpd. Courtesy of China and Trump and Venezuela and Libya and Iran, that is now the low
The concentration of power in the global system continues to gather in the Americans' favor. Trump is demonstrating he doesn’t need to build an alliance to fight and win a trade war with multiple countries simultaneously. Trump is showing he can wield financial tools simultaneously with trade tools to crushing effect. Trump is showing an enthusiasm for standing up to the business community, something that resonates not just with his base, but also Bernie Sanders’. And in case you missed it, last week the United States became the world’s largest oil producer courtesy of shale, granting Trump even more leverage and autonomy in international relations.
As a guy who makes it his business to integrate context and data in to everything, I find Trump’s brash, details-be-damned approach to… everything a bit annoying. But that doesn’t mean he can’t get results.