Donald Trump is trying to do something no U.S. president has dared to do in decades: Drive up the price of oil.
For more than three decades, U.S. presidents proclaimed cheap fuel as an almost God-given right for American motorists and homeowners, shaping the country’s foreign policy in pursuit of lower prices. As president, Trump didn’t just back cheap crude, he was its biggest supporter, frequently attacking OPEC and celebrating the shale boom’s deliverance of “energy dominance.”
Now, the Russia-Saudi price war and a killer pandemic have caused prices to plunge, putting Trump in the awkward position of begging those same countries to turn off the taps, even though retail gasoline will become more expensive as well. The U-turn comes as America has gone from being the top importer of oil to the top producer, aligning its interests more closely with Saudi Arabia and Russia in a shift that holds the potential to reverberate through foreign policy for years to come.
“It used to be very clear. For decades, when the U.S. was the largest importer, low oil prices were a real benefit to the country,” said Dan Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd. “But now, it’s very different. It’s become such an important industry again, with the supply chains that go all across the country.”
The new direction could change both how the U.S. engages with its Middle East allies when prices rise and how the market itself is perceived. Just as many Wall Street traders have assumed that the U.S. Federal Reserve will save the day since the 1987 Black Monday crash, oil traders may now expect the same from the White House.
Trump administration officials have said they are prepared to support OPEC and its allies agreeing to restrain output to lift oil prices. For now, Trump hasn’t said whether he would try to rein in U.S. production or limit crude exports. But he has threatened to put tariffs on foreign crude to protect energy workers and domestic oil companies if the Saudis and Russians don’t agree to output cuts.
“I never thought I’d be saying that maybe we have to have an oil increase, because we do,” Trump said in late March. “The price is so low.”
Trump will likely aim for an oil-price sweet spot, said Kevin Book, managing director of research firm ClearView Energy Partners.
It needs to be high enough to sustain a domestic industry tied to about 10.9 million jobs, including 1.1 million directly connected with production, drilling and support activities. At the same time, it needs to be low enough to provide cheap energy to help prompt an economic rebound after the coronavirus pandemic subsides.
Even as the U.S. claimed the title of the world’s top oil producer, the country has remained at the mercy of Saudis who have a geological advantage over America and can extract crude at much lower prices. And now the oil that made America energy dominant is so costly to extract that almost 40% of U.S. producers face insolvency within the year if prices remain near $30 per barrel, the Federal Reserve Bank of Kansas City warned on Tuesday.