Since I’m a historian of energy and U.S.-Iranian relations, I’ve been monitoring how the Trump administration’s policy toward Iran has affected global oil markets. I believe that these new sanctions do not serve U.S. energy interests because they may spark price increases that would punish American consumers. More generally, this move illustrates what I see as the incoherence of Trump’s energy policies and international diplomacy.
The U.S. lifted those sanctions after Iran agreed to the Joint Comprehensive Plan of Action, an international agreement that placed restraints on Iran’s nuclear program. As a result, its overseas oil sales shot up in 2016 and 2017.
But now President Donald Trump, who has derided the agreement since his electoral campaign, is bringing the hammer back down.
Saudi Arabia claims it can pump an extra 2 million barrels per day. But data from the Energy Information Administration indicates that Saudi Arabia will only have the potential to increase its daily production by 1.2 million barrels in 2019. That’s a dangerously slim margin.
The Trump administration has an insurance policy against the tightening oil market: its “energy dominance” policy and higher domestic production levels.
With domestic production booming, there’s a chance that the U.S. could be insulated from shocks to the global oil market.
But compared to Saudi Arabia, Russia and other major producers, America still sells relatively little crude to other countries and it imports far more oil than it exports.
What’s more, U.S. oil comes from hundreds of smaller fields, which makes it hard to easily cut or increase output. As a result, the notion that the U.S. can serve as a “swing producer” to restrain global oil price volatility is, in my opinion, unrealistic.
One way that the Trump administration could help is by encouraging energy conservation. Instead, it’s done the opposite by encouraging more fossil fuel investment than ever. Developing more oil fields may boost U.S. production, but it will also deepen American dependence on gasoline and diesel, making the U.S. economy more vulnerable to disruptions in the global market.
No end game
So why did the Trump administration give eight of Iran’s biggest customers, China, South Korea, Taiwan, India, Greece, Turkey, Japan and Italy waivers?
Perhaps it recognized the risks tied to squeezing Iran’s oil out of the markets altogether. Secretary of State Mike Pompeo said that waivers were granted after each country promised to continue cutting Iranian imports over time.
Trump has admitted that he was “going a bit slower” on Iran. “I don’t want to lift oil prices,” he said.
He took this position despite reported protests among Iran hard-liners like National Security adviser John Bolton. Pompeo, another hardliner, defended the waivers as part of a broader strategy of pressure on Iran. He rejected the idea that this was a retreat.
But should the Trump administration change course again, cutting off much more of Iran’s access to global oil markets at a time when the world’s spare capacity is dangerously low, it could lead to much higher gas prices in the U.S. and elsewhere.
And that’s the fundamental contradiction at the heart of U.S. oil policy. Punishing Iran by choking off its access to global petroleum markets will end up punishing U.S. consumers. They will have to pay more at the pump and higher oil prices will make just about every purchase more expensive.
This article is republished from The Conversation under a Creative Commons license.