Last week, we had the first of three debates between the US Presidential candidates for 2020. The US President Donald Trump and the Former US Vice President and the Democrat Party Candidate Joesph Biden confronted each other for the first time in a live debate. It was one of the most exciting debates of history in terms of American standards. Joseph Biden was repeatedly interrupted by Donald Trump, which was called “Clown” by his opponent. However, in this short article, rather than discussing that, I will try to focus on how these two candidates plan to work on energy topics if they get elected.
In the oil and natural gas sectors, the United States became a significant player with shale developments in the last decade. What happens next will be entirely dependent on the election outcome.
The candidates’ approaches to these two sectors are completely different. Donald Trump favors the oil and gas companies and focuses on building an export network for these two commodities. To achieve that, the current President put serious effort into keeping the market prices stable, especially during the Oil Price War crisis between Saudi Arabia and Russia.
While Donald Trump is building strong alliances with Saudi Arabia and the United Arab Emirates to ensure price stability, he also tries to control the supply side by imposing sanctions on Iran and Venezuela, other major oil and gas producers. The sanctions also limit other major powers China, India, and indirectly Russia’s accessibility to these energy sources. The limitations cause these countries to look for alternatives.
If the election results favor Donald Trump, I expect the continuation of the current policies. The sanctions on Iran and Venezuela will become harsh until the regimes collapse in both countries. However, if we see a Biden administration as the polls favored, the policies will be different.
One of the Democratic candidates’ main promises is to connect tackling economic recovery and climate change issues altogether by spending $2 trillion in four years. With this investment, Biden aims to accelerate clean energy in the transportation, electricity, and building sectors, create economic opportunities and strengthen infrastructure while also tackling climate change. With this mindset, Joseph Biden does not share Donald Trump’s sympathetic oil and gas industry approach. Therefore, the relationship between Saudi Arabia and Iran might be different in Biden’s presidency. Biden might want to renew the Joint Comprehensive Plan of Action (JCPOA) with Iran signed while he was the Obama Administration, vice president. Agreement with Iran can mean the return of Iran’s oil and natural gas exports to the energy markets.
In an interview last month, Joseph Biden claimed that Donald Trump’s strict sanction policy towards Iran created an increase in Iran’s resilience and became ineffective. Biden stated that under his administration, he would follow a sensible way if Iran chooses diplomacy option with the full commitment of preventing Iranians nuclear weapons. Finally, Biden pointed out that the sanctions should not hinder the Iranians’ fight against the coronavirus.
Domestically, despite Trump’s argument that Biden will ban all of the fracking activities in the oil and gas sector, the Democratic candidate ensured that he would not follow such a policy. However, to reach the climate policy target, Biden needs to be careful and pragmatic in his approach to the oil and gas industries. Current drilling permits help the federal government to collect nearly $15 billion, and part of these revenues are financing education and other social services in the Democratic states like New Mexico. The revenues from the Permian Basin generated $2.2 billion for the education system.
Under these circumstances banning drilling activities in these regions may cause fiscal spending to decline on social services. However, Biden can control the growth of the oil and gas sector by limiting access to water.
In June 2020, the Trump administration passed a law to pull back the federal protection for millions of streams and acres of wetlands. Since the shale operations require enormous amounts of water, reverting this law and imposing taxes on water usage may reduce the shale investments.
Up to now, Biden did not clearly explain the mechanisms on greening the energy in detail, yet he clearly stated that the United States would return to Paris Climate Agreement. Such a policy will help to restore relations with European countries as well.
When we compare the candidates’ approach towards China, Russia, and European countries, we see differences. In the Trump administration, the diplomatic relations with these countries occur with personal agreements between the leaders. Joseph Biden, on the other hand, proposes a more institutionalized approach to dealing with the issues.
For China, if Biden gets elected, we can expect the abolition of short term oil and agricultural trade deals and have more long term agreements that focus on protecting the US intellectual property.
When we look at Russia, we can expect that the relationship between the candidates will depend on China’s economic development. If the Chinese threat to the American economy continues to grow, relations with Russia may improve to isolate China. However, in each outcome, such a policy will not be an easy one.
In the Trump administration, the desire to sell LNG to European countries will continue to put pressure on Russian energy exports. On the other hand, if Biden gets elected, the US government will become more skeptical of Russia due to accusations of their involvement in the 2016 elections. So, they may need to resolve these issues first.
Finally, on the European side, Germany would clearly benefit the Biden administration as polls in the country suggests that Germans fear Trump more than coronavirus. As we discussed, due to Trump’s ambitious LNG export project to Europe, Germans had difficulties completing the NordStream 2 pipeline project with Russia. Biden can help with resolving this issue, and investments in renewable energy in the United States may create business opportunities for the German energy firms as well.
Overall, the result of the election will provide two completely different policy sets to the world, and it is very likely that it will have a huge impact on world politics and the economy. Up to now, the polls are favoring Joseph Biden 50,7% to 42,8%, yet this in 2016, they were also favoring Hillary Clinton %50 to 44%. So, there is still room for Trump to win the election.
In the stock exchange, the values of renewable energy companies are increasing every day as an indicator of expecting Biden to win. On the other hand, future oil prices are remaining around $40-$45 for the next 12 months, where we can comment that things are still uncertain.