Trump Declares War on OPEC, Saudis Laugh as Oil Price Surges

Donald Trump is ramping up his attack on oil prices as US crude hit a 5-month high today. While up to now the US president has been focused on denouncing high energy costs via Twitter, it appears he now is looking to do more than merely bash OPEC online. As CNBC reported, the US wants to ensure “dominance” in this sector through a blockbuster executive order designed to boost pipeline infrastructure. In reality, Trump walks a dangerous tightrope when it comes to crude.

Cheap Energy is Great for Farmers, Great for Trump

The main obstacle that Donald Trump faces in maximizing his popularity through energy policy is that two sides of his base want different things. First, there are the Rust Belt farmers and factory workers who love seeing the cost of living reduced. Farmers, in particular, use a lot of fuel, and any reduction in energy costs is a great benefit to their business. In this regard, Trump can help offset some of the damage his trade war has done to certain crop prices.

The other side of this coin is that other red states like Texas and Oklahoma love high energy prices. Historically, Democrats have been raked across the coals in these areas for trying to depress the value of crude. Trump is banking on tribalism to keep these states on board, and if polls are any indicator, they very much still are.

US Ingenuity - Not Obama or Trump - Has Already Created Energy 'Dominance'

Moreover, it is rather strange to see Trump bashing OPEC about high oil prices and wanting to restore US “dominance” when it is already the largest oil producer in the World. Obama doesn’t deserve credit for this as he previously claimed, but neither does Trump. Good old technical ingenuity helped the US access exploit unusable deposits.

us crude oil production
US crude oil production has been trending upward for years. | Source: FactCheck.org

However, there is another reason that Trump wants to subdue oil prices, and it is the same reason that he attacks the Federal Reserve over cheap money. Everything that Trump does is to try and stimulate the economy. He needs it in overdrive to make his GDP claims come to fruition. If energy prices are too high consumers, get defensive. It also erodes wage gains as inflation eats into paychecks.

Janet Yellen once called cheap energy "a tax cut" for the American people, and that is probably true. OPEC is far less diversified in general than the United States, so overall cheap oil is a significant negative as opposed to the US where it is a net benefit for the service based economy.

Could Trump's War on Oil Prices Sink His Popularity in Texas?

If the US president succeeds in crushing energy prices, there could be an interesting twist in 2020. Texas has been shifting blue for a while, and Beto O’Rourke nearly upended Ted Cruz in the most recent election.

If oil workers are sufficiently irritated, then conceivably they might rebel in 2020. The flip-side of this is that Trump could increase his manufacturing base in the “blue wall” of Michigan and Wisconsin as the economy keeps humming.

It’s the usual all-in strategy from Mr. Trump. The last Democrat to take the 38 electoral votes in Texas was Jimmy Carter in 1976.

 

Last modified (UTC): April 5, 2019 5:43 PM

About the author

Francois Aure
Francois Aure

Financial speculator living in the hills in Los Angeles. J.D. but very much not a lawyer. Favorite trading books are anything written by Jack Schwager. Email: [email protected], Twitter: @bullishtulips