Trump could return to strict sanctions. Harris likely to align with Biden policy

Kate Winston, Platts S&P Global

WASHINGTON
EnergiesNet.com 08 13 2024

US oil sanctions policy could change significantly if Donald Trump wins the presidential election and returns to a policy of maximum pressure sanctions, but broader economic factors will influence both the type of sanctions and the impact of those sanctions, experts say.

Combined crude production in Russa, Iran and Venezuela, the main countries currently targeted by US oil-related sanctions, was an estimated 13.2 million b/d in July, according to S&P Global Commodity Insights. That is an increase from 11.7 million b/d at the beginning of the Biden administration, and it is a decline from 16.1 million b/d at the beginning of the Trump administration.

“Whether it’s a Democrat or a Republican, the macro picture is really the first question,” David Goldwyn, chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, told Commodity Insights.

“If we are in a world of soft oil prices and excess capacity and moderate growth, then there is a lot of political space to get tougher on sanctions with Iran or with Russia or with others because you can do it without harming your own economy,” he said.

If Democratic nominee Kamala Harris wins the election, she is expected to largely continue the Biden administration’s approach to sanctions, with tougher sanctions focused primarily on Russia, according to experts.

But if Trump wins, he may return to strict sanctions on Iran, while potentially easing sanctions on Russia in exchange for a peace deal, experts say. Venezuela, however, could be a wildcard.

A possible Trump approach

The most market-relevant sanctions shift for a Trump presidency would be around Iran policy, if he cracks down on sanctions to try to reverse Tehran’s production gains in 2023 and 2024, said Rachel Ziemba, a senior advisor with Horizon Engage.

Iran pumped 3.2 million b/d of crude in July, according to the latest Platts OPEC+ survey by Commodity Insights. Trump’s 2018 “maximum pressure” sanctions campaign pushed Iranian crude output as low as 2 million b/d.

However, any meaningful production losses would be replaced by other OPEC+ countries and Trump may find it hard to implement tougher sanctions on Iran due to the deep nature of the trade Iran has with China, Ziemba said.

Ellen Wald, president of Transversal Consulting, agreed that a second Trump term would likely lead to stricter sanctions enforcement on Iran and Venezuela.

“When it comes to the Houthi rebels, I would expect Trump to use a heavier military hand than we have seen as of yet and I would not rule out strikes against Iranian targets that are supplying the Houthis,” Wald said.

Brenda Shaffer, an energy expert at the US Naval Postgraduate School, agreed that Trump’s approach to Iran and its proxies would likely go beyond sanctions. “Trump will likely return to sanction enforcement on Iran, but this will be dwarfed by the much more serious steps that Trump will take to deter Iran from acting against the US and its allies,” she said.

The next step to deterring the Houthis is to have more intensive land-based attacks on Houthi strongholds, Goldwyn said. A Trump administration is likely to use higher levels of force or provide Saudi Arabia and the United Arab Emirates with weapons to conduct attacks on Houthi rebels, he said.

Trump allies have touted the fact that Iranian crude production decreased after maximum pressure sanctions. But Goldwyn argued that macroeconomic factors influenced the efficacy of those sanctions.

“When demand was weak because of COVID and slow growth in the economy, it’s easy to sanction Iran and see its production decline because there isn’t a whole lot of global demand anyway,” Goldwyn said. “If you’re in a high-demand scenario, people will be willing to pay a premium or take risks to access those supplies,” he said.

Looking at Russia, Trump may enforce sanctions less and potentially lift them if there are signs of a peace agreement with Ukraine, Ziemba said. “I anticipate that a Trump administration would do less to implement the oil price cap, resenting the fact that the current policy benefits China (and to an extent even allies like India),” she said.

The G7-led $60/b price cap on Russian crude took effect Dec. 5, 2022.

But Wald had a different take on Russia. “I do not foresee Trump relaxing sanctions against Russia, though he may be more hesitant to dispatch American troops to Ukraine,” she said.

Venezuela wildcard

Some Republicans are urging stricter sanctions on Venezuela, but Trump’s approach to Caracas may be a bit of a wildcard, experts say.

The situation in Venezuela is still developing following the contested July 28 presidential election and may be different by the time a new administration enters the White House in January 2025, Shaffer said.

The US sanctions on Venezuela were not a natural Trump move and were instead initiated by John Bolton, who was then Trump’s national security advisor, she said. “Thus, Trump will likely take a new approach to Venezuela and the sanctions,” she said.

In his first term, Trump linked a lot of political capital to the political opposition in Venezuela, but they didn’t succeed in pushing Maduro out, Ryan Berg, the director of the Americas program at the Center for Strategic and International Studies, said in an interview. “He may think of pivoting because that was not a winning strategy,” he said.

But Trump could return to maximum pressure style sanctions just to be different than Biden, Goldwyn said.

As president, Trump brought the broadest oil sanctions we have seen on Venezuela and it is not far-fetched to believe that his reelection would mean the return of maximum pressure sanctions, said Nick Blanco, an analyst with Commodity Insights.

Venezuela’s crude production rose to 993,000 b/d in July in part because of a granting of company-specific sanctions waivers by the US, although downed upgraders are limiting Venezuela’s exports.

More severe sanctions on Venezuelan could include ending current company-specific licenses to operate in Venezuela, ending Chevron’s license, or reviving a US ban on Venezuelan crude, Blanco said.

“Any of these changes could come from both sides, but they would be more likely under Trump,” Blanco said. Of all the potential changes, the most important and the least likely would be the revocation of Chevron’s license, since Chevron’s continued role is critical to increasing production as well as exports to the US, he said.

So far, the Biden administration is not considering rescinding any company-specific licenses.

Harris’s potential policy

“Like Biden, Harris as president will undertake policies that keep Iranian and Venezuelan oil barrels in the market,” Shaffer said.

If Harris is elected president, she would likely promote a new deal with Iran and would not enforce sanctions or take action that could jeopardize such a deal, Shaffer said. Harris’s current top foreign policy advisor, Philip Gordon, was one of the negotiators of the Obama-era Joint Comprehensive Plan of Action deal with Iran and was one of its most vocal proponents, she noted.

Similarly, Harris is not likely to take significant action against the Houthi rebels to avoid risking relations with Tehran, Shaffer said.

But Russia may be a different story, Shaffer said. “The EU will likely widen sanctions on Russian this year and next. If Harris is president, the US will likely join these efforts,” she said.

It is likely that a Harris administration will follow policies like the Biden administration when it comes to sanctions, but it will depend on who she taps for various positions, Wald said.

“Barring some major event (a direct attack by Iran on a US ship, for example) it is unlikely she would have any motivation to increase sanctions on Iran and if she did, there is no indication that these sanctions would be anything more than statements,” Wald said.

The real issue is sanctions enforcement, something that the Biden administration has been relatively lax on, Wald said. “There’s no indication a Harris administration would enforce existing sanctions against Iran, Russia or Venezuela more stringently, given similar global conditions,” she said.

Iran’s new president came into office pledging to talk about sanctions with the US because sanctions add to corruption issues within Iran, Ziemba said. A Harris administration will likely want to engage in diplomacy with Iran, but any new negotiations will need to include Tehran’s regional role, in addition to its nuclear weapons ambitions, she said.

“A lot can happen in the region between now and then, so the exact contours are not clear, particularly since we are waiting on the cabinet and a response from Iran’s new government,” Ziemba said.

spglobal.com 08 12 2024