US contends with foreign policy restraints
Foreign policy issues rarely headline US presidential elections, but the rest of the planet has a vested interest in the decision of US voters in November whether to re-elect President Joe Biden or to return his predecessor Donald Trump to office.
Ideological differences between the two candidates are obvious and, at least in the case of Biden, the policy positions are clear enough to outline a possible course on global affairs in 2025-29. Trump's possible actions in the same period are harder to pin down — his promise to make America as great as he says it was during his presidency is characteristically inexact, and there are many competing proposals expressed by his former and would-be foreign policy advisers.
But there are challenges that will confound either Biden or Trump, especially on issues in which the differences between the two presidencies were more stylistic than substantive, such as Iran sanctions and confrontation with China. Foreign policy decisions made by Trump have constrained Biden's room for manoeuvre in the Middle East and other regions. Biden's legacy — support for Ukraine, Indo-Pacific alliances and "friend-shoring" — may likewise prove hard to undo without causing direct harm to US interests. Both have encountered limits to US power during their term in office, despite the country's overwhelming military and financial edge. And any occupant of the White House would have to contend with a world that has evolved in many complex ways in the past decade.
The Middle East is one area where both presidents have tried and failed to dial down US presence. Biden's administration continued its predecessor's course of advancing the normalisation of Israel's relations with Mideast Gulf states, only to find itself thrust into a position of advocating a two-state solution to the Israel-Palestine conflict in the wake of the military operation in Gaza. Tehran has shrugged off both Trump's "maximum pressure" campaign and Biden's bid for renewing the Iran nuclear deal, by finding ways to bypass US sanctions under the auspices of China, the buyer of last resort for Iranian and other sanctioned crude.
No exit
Trump's unilateral exit from the JCPOA nuclear deal has proven consequential for the wider Middle East. With no deal to constrain its nuclear programme, Tehran's theoretical capacity to produce nuclear weapons is matched by demonstrated ballistic ability to deliver large payloads across the entire region. "I expect that Iran's nuclear programme is going to thrust itself back into the headlines" soon, says Johns Hopkins University professor Adam Szubin, a former top US sanctions enforcer. An informal US-Iran deal to delay Tehran's progress on the nuclear front is being tested daily in the wake of the Gaza conflict, as the US and Iran-backed militants in Syria, Iraq and Yemen are exchanging fire.
The one big change since the Trump presidency is a detente between Tehran and its erstwhile Mideast Gulf rivals. Riyadh and Abu Dhabi encouraged Trump to confront Iran in 2017-18. They are now urging Biden to tread carefully in Yemen as the US tries to curb the Houthi threat to Red Sea shipping. Trump's transactional approach to foreign policy may have initially appealed to the Gulf Arab powers, but the US turned out to be an unreliable partner — Trump did not intervene after an Iranian attack in September 2019 on Saudi state-run Aramco's key Abqaiq oil hub.
Saudi Arabia is now pushing for more formal security guarantees from the US — a prospect that seems possible to accomplish under Biden, even if tied to broader Middle East issues such as regional economic integration and addressing the Palestinian dilemma. The Biden administration's approach to managing global oil markets has turned out to be more nimble than its predecessor's, with the additional benefit of divorcing relations with Opec from the US-Saudi geopolitical agenda. Trump, once in office, could undo all that, but there is no alternative that would satisfy Riyadh's current security and economic priorities.
The Biden administration's current thinking on Iran remains reliant on de-escalation of tensions, including by addressing Gaza and other Middle East conflicts. Former Trump administration officials are arguing for a more muscular approach to Iran, and for putting more economic pressure on China to stop importing Iranian crude. Trump himself shows little willingness to confront Iran militarily. But the prospect of greater economic pressure against Iran and China is one issue in which Trump and his advisers seem to have ideas in common.
The great helmsmen
US-China relations are stable following a recent summit between Biden and Chinese president Xi Jinping, but "it's a brief upside in a relationship that is in a controlled, steady downward decline", research firm Amundi Investment Institute's head of geopolitics, Anna Rosenberg, says. The Biden administration has ruled out a complete decoupling of the US and Chinese economies, but it is imposing trade restrictions in the semi-conductor, renewable energy and electric vehicle sectors.
Biden's policy of fragmenting global markets to secure the supply of critical minerals and processing technology for renewable energy continues efforts that started under Trump, even though the current White House looks at that through the decarbonisation lens. A second Trump administration "will probably be much more broad-based in terms of trade restrictions", Rosenberg says.
Evasion of Iran sanctions already demonstrates the limits of the US' economic pressure toolkit. Chinese importers' ability to avoid reliance on US dollars leaves Washington little choice — retaliating with sanctions against major Chinese banks and companies would affect the US and global economy as well.
The same dynamic is likely to play out in a hypothetical scenario of responding to China's more assertive posture against Taiwan, whether by military or economic means, Szubin says. "The US response is not going to be Russia-style sanctions that go after the central bank, that cut off the largest banks from the US dollar," he says. Even in the case of Russia, the financial constraint effect of western sanctions turned out to be less than expected. "If China was able to build and promote the alternative, non-dollar-based financial system, then financial sanctions against China probably would not be as powerful or effective," US Council on Foreign Relations fellow Zoe Liu says.
Biden and Trump's greatest differences are perhaps on the value of US alliances and Ukraine, and the possibility of Trump's return to office has already galvanised European countries to devote greater resources to defence spending. "If a [potential] US president doesn't want to defend its allies, that's all it takes — that threat in itself is big enough to cause a change in action," Rosenberg says. A notional deal to end fighting in Ukraine within a day of taking office may or may not be a serious pledge by Trump, but it assumes that Ukraine and its EU allies will play along and that Russian president Vladimir Putin is willing to negotiate.
The US disengagement from the Middle East has led to regional powers patching up relations and looking for new alliances in recent years. Erratic actions on the wider global stage likewise would prompt US allies to look for alternatives. A Trump-imposed compromise in Ukraine could lead to similar deals by erstwhile US allies, such as finding accommodation with China on energy transition technologies. It may be a feeble guarantee against drastic steps by Washington, but partners will be hoping it is harder to unwind the individual elements of a US alliance combining security, energy and finance.
Related news posts
Mexican power outages enter fourth day
Mexican power outages enter fourth day
Mexico City, 10 May (Argus) — Mexican power grid operator Cenace issued its fourth consecutive day of operating alerts amid the heatwave gripping the country. Net electricity demand reached 47,321MW early today, with deployed electricity capacity slightly below at 47,233 MW, according to Cenace. Since 7 May, Cenace has declared emergency operating alerts as demand exceeded generation capacity during peak evening hours, prompting the grid operator to preemptively cut electricity supply across different states to maintain grid integrity. Power outages have lasted up to several hours in Mexico City and in major industrial states as power demand has outstripped supply by up to 1,000MW. Peak demand this week hit 49,000MW, just below last year's historic peak of 53,000MW during atypical temperatures in June. "We are very concerned about the unprecedented outages detected across 21 states, a situation that affects the normal functioning of Mexican companies," national business chamber Coparmex said. Peak electricity demand typically rises in June-July but temperatures this week have risen as high as 48°C (118° F) across some states. Mexico City reported a record high of 34.3°C on 9 May and high temperatures are forecast to continue into next week, Mexico's national weather service said. The inability of Mexico's grid to respond to increased demand is because of insufficient power generation capacity, non-profit think-tank the Mexican institute for competitiveness (Imco) said this week. "Despite the energy ministry's forecast that 22,000MW of new power capacity would enter service by 2026, only 1,483MW had entered service as of 2022" since late 2018, Imco said. President Andres Manuel Lopez Obrador's administration pledged to build new generation capacity, including five gas-fired, combined-cycle plants, but recognized this week that delays had contributed to the power outages. "We have an electricity generation deficit because some of the combined-cycle plants were delayed, but we are working on it and it will soon be resolved," Lopez Obrador said on 9 May. Lopez Obrador's government has also curtailed private sector power development during his administration. Mexico needs to upgrade and expand its transmission network, industry associations say. "In order to resolve this problem, we believe that a reopening of the electricity market to the private sector is imperative," Mexico's wind energy association, Amdee, said. Mexico has 87,130MW of installed capacity, with 39.5pc from combined-cycle gas-fired power plants and 31pc in renewable power, including wind, solar, hydroelectric, geothermal and biomass, according to the latest statistics from the energy ministry. By Rebecca Conan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Petrobras to expand free gas market footprint
Petrobras to expand free gas market footprint
Rio de Janeiro, 10 May (Argus) — Petrobras said today it will offer new types of natural gas contracts in Brazil's open market with more flexibile and competitive terms, but provided no details on the planned offers. The company also announced new commercial contract models for gas sales to state distributors, offering price reductions for current contracts of up to 10pc. The reduction will be connected to the distributors performance, Petrobras said, without providing more detail. The move by the state-controlled giant is significant given the 2021 gas market liberalization as aimed at increasing competition at every step of the value chain beyond just Petrobras. But progress has been slow in cutting Petrobras' market share, lowering prices, and increasing market transparency. The 2021 gas law covers the full lifecycle of natural gas, from production to transportation, processing to storage, and sales. A key provision aimed at promoting competition in the upstream, midstream, and downstream sectors, particularly transportation and distribution. Yet, three years later, there is little sign of downstream customers migrating to the free market, despite some moves such as those from Delta Geração, Acelen, Gerdau, Tradener, and others. The number of free market commercial contracts does not exceed ten, according to a lawyer specialized in the energy market. By Betina Moura Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Russia leads Opec+ output fall
Russia leads Opec+ output fall
London, 10 May (Argus) — Opec+ crude output by members subject to cuts fell by 440,000 b/d in April as Russia began implementing a fresh cut and Iraq and Kazakhstan curbed some of their overproduction. This saw the group's production fall to 34.11mn b/d, which was 140,000 b/d above quota, Argus estimates. Still, this was a marked improvement on the 230,000 b/d overproduction that it recorded in March. The lower production has not provided much support to oil prices, which have shed $5-8/bl in the past month. Several members of the alliance are implementing a new set of "voluntary" cuts that came into effect in January and, for now, run to the end of June. What Opec+ decides to do beyond this will probably be decided at a ministerial meeting in Vienna on 1 June, although the likelihood of a rollover has grown as oil prices have fallen. The big mover last month was Russia, whose output fell by 210,000 b/d to 9.29mn b/d. The drop is related to Russia's pledge to start phasing out an existing 500,000 b/d export cut commitment from April and replace it with a 471,000 b/d production cut by June. But the country remained 190,000 b/d above its new 9.1mn b/d target for April. And while the output fall shows Russia has made headway with its pledge to reduce production, sanctions on the country's oil industry and Ukrainian attacks on its refineries could affect its crude output in the months ahead. Iraq and Kazakhstan also reduced their output last month, while remaining well above target. Iraqi output fell by 40,000 b/d to 4.14mn b/d, mostly owing to lower crude use by the power sector. But this was still around 140,000 b/d above its target of 4mn b/d. Kazakhstan's output fell by 40,000 b/d to 1.54mn b/d — the second month in a row that its output has fallen. But it was also still around 70,000 b/d above its target of 1.47mn b/d. Compensation plans Iraq and Kazakhstan have each submitted plans to the Opec+ Joint Ministerial Monitoring Committee detailing how they intend to compensate for producing above target in the first four months of the year. As things stand, Iraq says it will produce 50,000 b/d below quota in May-September, 100,000 b/d below quota in October-November and 152,000 b/d below quota in December. Kazakhstan's compensation plan starts in May with an initial cut of 18,000 b/d below target. It would then stick to its target in June and July before implementing a cut of 131,000 b/d in August, no cut in September, 299,000 b/d in October, 40,000 b/d in November and no cut again in December. The two countries' plans are dependent on a final production figure for April from secondary sources — including Argus — and could be adjusted after it becomes available. Nigerian production recorded a large fall in April, dropping by 100,000 b/d to 1.4mn b/d, the lowest since 1.28mn b/d in August 2023. This left the country 100,000 b/d below its target of 1.5mn b/d. Production was relatively uneventful in the Mideast Gulf Opec+ contingent. Saudi Arabia's output fell by 30,000 b/d to 8.97mn b/d, the UAE's fell by 20,000 b/d to 2.93mn b/d, Kuwait's dropped by 20,000 b/d, while Bahrain's production increased by 30,000 b/d to 190,000 b/d. All four members were more or less within their targets. Iran, which like Libya and Venezuela is not bound by production targets, boosted its output by another 20,000 b/d to 3.3mn b/d — the highest since October 2018. The gains have come despite US sanctions and Washington's attempts to crack down on the country's oil trade. Opec+ crude production mn b/d Apr Mar* Apr target† ± target Opec 9 21.32 21.54 21.22 0.10 Non-Opec 9 12.79 13.01 12.75 0.04 Total Opec 18 34.11 34.55 33.97 0.14 *revised †includes additional cuts where applicable Opec wellhead production mn b/d Apr Mar* Apr target† ± target Saudi Arabia 8.97 9.00 8.98 -0.01 Iraq 4.14 4.18 4.00 0.14 Kuwait 2.41 2.43 2.41 -0.00 UAE 2.93 2.95 2.91 0.02 Algeria 0.91 0.92 0.91 0.00 Nigeria 1.40 1.50 1.50 -0.10 Congo (Brazzaville) 0.28 0.25 0.28 0.00 Gabon 0.23 0.25 0.17 0.06 Equatorial Guinea 0.05 0.06 0.07 -0.02 Opec 9 21.32 21.54 21.22 0.10 Iran 3.30 3.28 na na Libya 1.22 1.18 na na Venezuela 0.82 0.85 na na Total Opec 12‡ 26.66 26.85 na na *revised †includes additional cuts where applicable ‡Iran, Libya and Venezuela are exempt from production targets Non-Opec crude production mn b/d Apr Mar* Apr target† ± target Russia 9.29 9.50 9.10 0.19 Oman 0.76 0.76 0.76 0.00 Azerbaijan 0.48 0.48 0.55 -0.07 Kazakhstan 1.54 1.58 1.47 0.07 Malaysia 0.35 0.35 0.40 -0.05 Bahrain 0.19 0.16 0.20 -0.01 Brunei 0.08 0.08 0.08 -0.00 Sudan 0.02 0.02 0.06 -0.04 South Sudan 0.08 0.08 0.12 -0.04 Total non-Opec† 12.79 13.01 12.75 0.04 *revised †includes additional cuts where applicable Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
California fuel retailers fear regulatory scrutiny
California fuel retailers fear regulatory scrutiny
Houston, 10 May (Argus) — US fuel retailers like neither the regulatory precedent being set in California nor how the transition to renewable fuels is being managed, but companies sticking it out in the Golden State may reap rewards. California governor Gavin Newsom (D) in March last year signed SB X1-2 into law, allowing the California Energy Commission (CEC) to gather a broad range of profit data from refiners and set a maximum gross gasoline refining margin in an effort to avoid price spikes at the pump. "Unfortunately in California there is no shortage of bad policies that are being proposed," California Fuels and Convenience Alliance director Alessandra Magnasco said this week in a legislative affairs meeting at fuel retailer trade association SIGMA's conference in Austin, Texas. She worries that if the CEC fails to make progress in capping margins at the refiner level, they will look further downstream and regulate retailers. The alliance is opposed to what it sees as burdensome reporting requirements mandated by SBX 1-2 that were rushed through the legislature. "They are doing it in a way to leave out industry," Magnasco said. The CEC this week approved further reporting requirements for refiners in the state, mandating they file maintenance schedules with the commission at least 120 days in advance of planned work and within two business days after the start of unplanned shutdowns. "Every bad idea we face has generally been socialized in California first," David Fialkov, vice president of government affairs for US fuel retailer trade association NATSO, said during the SIGMA session. The increased adoption of renewable diesel in California is also causing headaches for fuel supply managers. "I can't even tell my customers which specific terminal might have traditional diesel versus renewable or if they're going to have both," said Deborah Neal, director of price risk management for fuel supplier World Kinect during another SIGMA panel discussion. The introduction of renewable diesel to the California market was done without a specific time line or transition plan, Neal said. "It's messy to say the least." The regulatory environment in California has also dampened appetite for mergers and acquisition activity in the eyes of bankers doing the deals. Gas station buyers who are looking to consolidate smaller assets are not looking at California if they are not already invested there, Matrix Capital Markets' co-head of downstream energy investment banking Cedric Fortemps said at SIGMA. "The operating and legal dynamics are completely different than other parts of the country," Fortemps said. But for companies already operating in California, there is limited out-of-state competition and high barriers to entry. Those companies are keen to grow their existing operations, Fortemps said. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more