Trump poised to unwind Biden's rewiring of global energy trade
Under US President Joe Biden’s watch, global energy trade underwent a historic rewiring. However, the return of Donald Trump to the White House in January could upend that shift, with considerable implications for the Middle East and global economy.
In the last four years, Iranian oil exports have flourished while Russian energy has become a target of US sanctions. As a result, China has gorged on cheap Russian and Iranian oil, and Gulf monarchies have lost market share in Asia.
The most immediate impact of Trump’s return as US president will be in Iran. Former Trump officials and Arab diplomats told Middle East Eye that they expect his administration will quickly reimpose “maximum pressure” sanctions.
“Trump is going to squeeze the Iranians out of the market,” Viktor Katona, an energy expert at Kpler, told MEE. “He can’t do it totally because Iran trades in Chinese Yuan, but Iranian crude will be taken off the market and this will be an opportunity for Saudi Arabia.”
In September 2024, Iran overtook Saudi Arabia as China's top oil supplier. That historic shift was driven by Iran undercutting Saudi prices by eschewing any production constraints.
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Iranian revenue from oil exports nearly doubled from $28bn in 2019 - a year after Trump pulled out of the 2015 nuclear deal and reimposed sanctions - to $53bn in 2023, as the Biden administration stopped enforcing sanctions. Oil prices were higher in 2023 compared to 2019 but nowhere near as high as the jump in Iranian oil revenue.
Between July and September of this year, Iran’s oil exports stood at 1.7 million barrels per day, roughly three times higher than the same period in 2019, according to data shared with MEE by Kpler.
Iran has carved out a “shadow fleet” of tankers and a parallel financial system to export oil to China. Iran’s oil trade with China has grown so significantly, that Saudi Arabia, which leads the Organization of the Petroleum Exporting Countries (Opec), would welcome any constraints.
Saudi Arabia has been wringing its hands to cajole Opec members, such as Iraq and the United Arab Emirates (UAE), to limit production to support prices.
Although Iran is a member of Opec, its oil trade is conducted under the table, enabling it to flood China with oil while Saudi Arabia holds back. This allows Iran to effectively free-ride on Saudi Arabia’s policies to support prices.
Trump's approach to Russia
While Saudi Arabia and other Gulf states might approve of sanctions on Iran, they face a more mixed response when it comes to Trump’s approach to Russian oil.
Trump has vowed to end Russia’s war in Ukraine, and a former Trump official now working on the policy told MEE that the outline, which would freeze the war, also includes lifting sanctions on Russian energy and petroleum products.
“When the war in Ukraine stops, there will be a gradual reduction in Russian sanctions. Putting on and off sanctions, like the price cap, is part of diplomacy,” a former Trump official associated with the campaign, told MEE.
After Russia’s invasion of Ukraine, the Biden administration and its European allies imposed a $60 price cap on Russian oil, allowing vessels insured and linked to the US and EU to transport Russian crude as long as it remains below this threshold.
'When the war in Ukraine stops, there will be a gradual reduction in Russian sanctions'
- Former Trump official
In response to the cap, Russia emulated Iran by building a shadow fleet of tankers not affiliated with the West. Only 37 percent of Russian seaborne crude oil and its products are transported by tankers subject to the price cap. The remainder is shipped by these shadow tankers, according to the Centre for Research on Energy and Clean Air.
Western sanctions have dented Moscow’s oil revenue but have not curtailed it. Russia has replaced its traditional European market with China and Turkey.
Trump has expressed concerns about US sanctions.
"I was a user of sanctions, but I put them on and take them off as quickly as possible because ultimately it kills your dollar and it kills everything the dollar represents," Trump said at the time.
"So I use sanctions very powerfully against countries that deserve it, and then I take them off because, look, you're losing Iran. You're losing Russia," he added.
If the price cap and sanctions are lifted, Saudi Arabia may be able to reclaim some market share from Russia in Asia, where Russia has discounted its prices.
Russia overtook Saudi Arabia as the top oil supplier to China in the last two years.
At the same time, Saudi Arabia, the UAE and even Turkey have benefitted from purchasing cheap Russian fuel and petroleum products and re-exporting them to the West. If Trump removes sanctions, this profitable trade could dry up.
'Saudi Arabia is really fragile right now'
However, Trump's most important decision on Gulf energy policy may be his stance on domestic production.
The only Middle Eastern country Trump mentioned during his Florida victory speech was Saudi Arabia. While referencing climate activist and ally Robert F Kennedy Jr, Trump said: “Bobby, stay away from the oil, stay away from the liquid gold. We have more than Saudi Arabia and Russia.”
The US is the world’s largest oil producer and domestic production hit a record high under Biden. However, Trump has pledged to expand drilling across the US and ease regulations as part of his commitment to lower energy prices and curb American reliance on Gulf states.
The International Monetary Fund estimates that Saudi Arabia needs oil at $96 per barrel to balance its 2024 budget, as it pursues Crown Prince Mohammed bin Salman’s Vision 2030 plan.
“Saudi Arabia is really fragile right now, running fiscal deficits. It will not just sell itself out to Trump’s dream of low energy prices," Katona said.
Trump’s vow to ramp up US energy production could cause oil prices to drop to $60 per barrel, Citi Bank analysts said on Thursday. This suggests Trump may face pressure not only from Gulf states but also from the US energy industry, which seeks to balance supply and demand to sustain prices.
On Friday, Brent Crude prices were trading down 2.87 percent to $70.28 per barrel, underscoring how Trump's pro-energy policies could outweigh Iran oil sanctions.
“Everyone who can produce oil in the US right now is doing it. ExxonMobile and Chevron don’t want to produce everything right now. Trump needs to get Saudi Arabia to gradually increase production by taking market share from Iran and gradually bring US producers to lift production," Katona added.
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