Implications of the US election for the GCC

This is a bonus on top of the usually weekly newsletter, with some reflections on the implications of the US election for the GCC, and wider region.

• Oil and gas production hit record levels under Biden, despite less enthusiasm for the sector, and would rise further under Harris, even as investments in green energy continue. [see extract below].
• Trump advocates for increased hydrocarbon production, promising to crash oil prices, but this could be offset by higher domestic oil consumption, as green subsidies are rolled back.
• Gulf states naturally care about oil prices, but they have also come around to investing heavily in the energy transition and this would continue whoever is in the White House.
• Trump’s economic policies, particularly tariffs and tax cuts, would be inflationary and lead to higher interest rates than the GCC would like to see.
• The impact of either president on economic growth and US markets, in which the GCC are heavily invested, is harder to predict.
• China is the largest trade partner for all Gulf states, and its importance will grow further in the next president’s term, including some trade in yuan, so US-China relations matter a lot.
• Although Harris has shown more empathy for Palestinians than Biden or Trump, it is unclear if her approach to Gaza and the broader conflict would be substantially different.
• Harris would be less hawkish than Trump on Iran. Her foreign policy advisor, Philip Gordon, backed a nuclear deal and is a skeptic of US regime change in the Middle East.
• Harris’s policies would be more multilateral and conventional. Trump’s would be transactional and erratic, which could result in progress but also risk escalating conflicts.
• Trump has a relationship with several Gulf leaders, notably MBS, whereas Harris has had less exposure to the region, although she has visited the UAE twice and meets MBZ next week.
• Ongoing links with Trump since he left office have included calls, sovereign investments in funds led by his family and friends and Trump Organization projects in the GCC.
• While some Gulf governments may have preferences, they are preparing for either president and remain focused on maintaining an enduring relationship with the US collectively.

This bullet summary is taken from an 8,000-word report from my GCC research service with GlobalSource Partners, a leading source of independent emerging market intelligence. Message me if you'd like a link around the paywall to the full report or click on any report to sign up for guest access. The service also includes the most extensive comparative GCC Databank available, updated weekly, and direct analytical support. Clients include banks, asset managers and governments spanning the GCC, Asia, Europe and the Americas.

Extract: US energy policy

Although oil and gas production rose strongly during Trump’s term as president, from about 9m b/d to a peak of 13m b/d in November 2019, it has also risen under Biden-Harris, to 13.3m, and might have risen even further if not for the impact on investment in the sector of the Covid crash and then high borrowing costs during much of their term. The surge in US production during Trump’s term was largely a result of innovation in the sector and investments that had been initiated during the Obama-Biden Administration, which had already crashed oil prices and catalyzed the formation of OPEC+ in 2016. Although Trump did lease more federal land for drilling and loosened regulations for pipeline construction, these had minimal impact on output during this term; conversely, he placed a ban on coastal drilling across much of the Gulf of Mexico and Atlantic seaboard. In his first election campaign, Trump had also focused heavily on promoting coal (also a traditional Pennsylvania industry) but, despite his promises, production continued its long-term decline during his term, for the simple reason that it is too expensive relative to abundant US gas. Coal production has actually stabilized under Biden, though not because of any policies to support it.

The Biden Administration has encouraged investment in green energy and EVs, particularly through subsidies in the Inflation Reduction Act, although the impact of these policies has not yet been as great as had been anticipated. EV adoption in the US is lagging far behind Europe and China, and the target of EVs comprising 50% of new sales in 2030 now looks hard to achieve (UD). Biden also placed some modest restrictions on hydrocarbons, such as delaying approvals of new LNG export projects, canceling the controversial Keystone XL Pipeline (which would have transported Canadian tar sands crude to US refineries), slowing the issuance of licenses for new drilling on federal land and increasing royalties (WP). However, the administration has not taken the more aggressive steps that those on the left advocating for a “Green New Deal” had hoped for. It also approved the ConocoPhillips Willow project in Alaska, the largest drilling operation in the US, and allowed many LNG projects to go forward that have resulted in US LNG exports rising to become the world’s largest, surpassing Qatar (EIA, CP).

Harris’s platform speaks about “lowering household energy costs… and building a thriving clean energy economy, all while ensuring America’s energy security and independence with record energy production”. She would broadly continue existing policies, which are widely forecast, including by OPEC and the EIA, to lead to continued strong growth in US hydrocarbon production over the next few years.

The fourth point on his Trump’s election platform, after ending immigration and inflation, is to “Make America the dominant energy producer in the world, by far!”. The document goes on to promise to “streamline permitting, and end market-distorting restrictions on Oil, Natural Gas, and Coal” which it says will lead to “lowering Energy prices even below the record lows achieved during President Trump’s first term”. Trump met with oil executives in April and reportedly asked for $1bn in campaign donations, which he said would be a deal relative to the benefits of reduced tax and regulation under his administration (WP). His platform also calls for “terminating the Socialist Green New Deal”, suggesting an effort the roll back subsidies, regulations and public procurement that are supportive of renewables and EVs; Trump has pledged to ban offshore wind farms, which he says kill whales, by executive order on day one of his presidency (Gd). While the campaign platform is short, there are potential clues about specific policies in Project 2025, a very long and detailed policy agenda put together by the conservative Heritage Foundation. Trump has disavowed any connection to the project, which has become politically toxic, but many of his former officials and advisors were involved in crafting it and he previously implemented many of the Heritage Foundation’s recommendations for his first term. In the area of energy, at least, the details outlined in Project 2025 do seem to align with the tone of Trump’s platform. The document includes chapters on the Department of Energy, Environmental Protection Agency (EPA) and Department of Transportation. Proposals include lifting drilling restrictions in sensitive areas, such as the Arctic National Wildlife Refuge, excluding climate considerations from project approval criteria, dismantling the Office of Energy Efficiency and Renewable Energy, ending subsidies for renewables and EVs, reducing fuel economy standards (including those applied at a state-level by California) and scaling back the role of the EPA. Conversely, it should be noted, Trump has reduced his criticism of EVs recently, as Tesla’s CEO Elon Musk has become a strong supporter and donor.

From the perspective of the GCC, if Trump’s policies did lead to a large increase in US hydrocarbon production and hurt prices, then that would be negative. However, except at the margins with some pipeline and drilling permits, his polices are unlikely to have a dramatic or rapid impact on US oil production. Also, some of that impact would also be offset by greater US oil consumption under Trump than Harris, as his proposed policies would at least slow down the energy transition in the US. This oil consumption impulse that would be felt more quickly than new hydrocarbon projects, which have a lead time of at least several years. However, the energy transition would continue to move ahead internationally and within the Gulf States themselves, who are making some of the most aggressive investments in green energy and directly experience in impact of climate change as the arid region struggles with longer and more extreme summers (including during this year's Hajj pilgrimage). It is unclear what would happen to the US-UAE partnership to invest $100bn into renewables. The UAE would continue to invest in renewables and Saudi Arabia in manufacturing EVs, even if the US government cools on these technologies. We might even see surprising alliances at the annual COP climate meetings, with Gulf oil exporters joining Europeans and developing nations to lobby the US.