The Donald is upon us and so are the many streams of consciousness such a remarkable character will bring to the minds of every part of the globe's machinations, we pick and consider an initially important factor to the oil market below. The outgoing President Biden can take some credit, but the holding so far of the Gaza peace deal and hostage exchange would not have happened without the looming presence of the President-elect. Oddly, for all the warnings and rhetoric regarding China, markets have been pitched something of a curveball as not only has Mr Trump conveyed a message that he wishes to travel to China to meet with President Xi, he has also orchestrated a reprieve for TikTok which was due to go dark in the US over the weekend. While the markets will not be drawn from a state of reservedness, made more so by the Martin Luther King holiday in the US, stock indices nonetheless express some gratitude by opening with a positive bias this morning.

'Unprecedented', was a word much bandied during Trump I, it will return in Trump II and be evenly matched with 'unpredictable'. In his 'Make America Great Again' rally this weekend he promised a full day of sweeping legislative changes and none can really tell what and which they might be or the ensuing effect. Bloomberg this morning is reporting a possible invocation of emergency powers in energy with the aim to sweep aside any restrictive practice to US production and exportation of fossil fuels with a rollback in green and pro-climate regulation. This morning's market whisper is how Mr Trump might be reconsidering the recent expansion of US sanctions on the globe's 'dark fleet' in an attempt to find a crowd-pleasing way to start the beginnings of a negotiated settlement in the Ukraine. Oil prices have wallowed a little in accordance, but the truth of it will only be revealed in the next few days and all of our jobs for a little while will not be in deciding whether something is bullish or bearish, it will be if it is fact or fiction.

Possible target Number One, Iran

One could pick any issue from an enormous cast of protagonists’ playbooks to study as Trump part deux broadcasts to a television near you today. But as we are supposed to concentrate on energy markets, our concern will obviously be how the new President will enter the oil fray. Much money is now being placed on a campaign against Iran, something that the ex and new US leader deems as unfinished business. World leaders, especially the most powerful one, are expected to behave in statesman-like example with decorum and emotional detachment, but is this realistic having been the target of an assassination attempt in July, only to find out that after winning the election an Iranian asset had been instructed to formulate a plan for another? Hopefully President Trump shows all the attributes expected of him, but his history with Iran is not well foregrounded.

Much has been made of Trump’s dislike for Barak Obama as being one of the driving forces behind his withdrawal from the JCPOA Iran nuclear deal in 2018, indeed, President Trump dismissed it as the “worst deal ever negotiated”. However, Michael Anton, a top national security advisor said in 2020 that Trump did have a “visceral dislike” of Iran due to the awful circumstances surrounding the taking of American hostages during Iran’s 1979 revolution. But Anton opined to CNN that the President of the time was motivated by failing years of appeasement toward Iran rather than any antipathy toward his predecessor.

Spin the clock forward a few years and consistency in message is shown by Donald Trump as Barak Obama is replaced as the vitriolic target by Joe Biden. In an interview with NBC after the 7 October 2023 atrocities in Israel, he assailed Obama’s former Vice. The war, in which Israel is now laying siege to the Hamas-controlled Gaza Strip, "happened for three reasons," Trump said: Iran reaping oil revenue from relaxed sanctions enforcement, "our country's perceived weakness" during Biden's term, and the U.S. freeing up $6 billion in Iranian funds for humanitarian efforts as part of a prisoner swap. It might appear Mr Trump’s attitude falls in with those of party lines, but he has also in the past been critical of George W. Bush and how his Iraq campaign blinded his judgement to the policies and ambitions of Tehran.

In his previous administration the new President tried to denude Iran of petrodollars, and his sanction policy was successful if not antagonising. Under the Obama regime, Iran exported as much as 2.5mbpd providing healthy income into its exchequer and no doubt geopolitical war chest. Under the heavy scrutiny of Trump’s administration, the US sanctions brought a hammer blow to such free-flowing oil and Iran’s customer base disappeared for fear of repercussions meaning exports collapsed to 400kbpd. Having then lost control of the White House in 2020; a bout of pragmatism ensued from Washington. Soaring oil prices due to the Ukraine invasion saw President Biden operate a policy of political convenience with a blind eye and an easy hand turned toward not only Iran but also the likes of Venezuela, and according to Energy Intelligence using Kpler data, Iranian oil to water has increased to 1.7mbpd as of December last year.

Appeasement to Iran and oil price is about to disappear and they are made all the easier by the recent sanctions imposed by the outgoing Biden administration on those entities and vessels themselves that would flout international restrictions. China is no mood to upset the US anymore as itself will likely feel the sanction ire of the new US regime. Therefore, the ships laden with crude which line up off of China’s refiners reflects a new attitude from the US’s greatest trade rival in not busting sanctions. Even if much of their intent is toward Russian crude, the new rules are keeping Iranian oil from making port. Not only that, but the happenstance of war has also made the prospect of bringing Iran to a Trump heel more likely.

The proxies of Hezbollah and Hamas have been routed and smashed by Israel and with Syria no longer available as an ally Iran is bereft of friends. The US rapprochement with Saudi, the UAE, Qatar and Egypt after the folly of Iraqi and Afghan wars leaves only one winner if the countries listed had to choose sides. The other issue and very acute remains the massive spare capacity of OPEC. Political big wigs in Iran will understand if any shortfall need be made up to its previous customers, there will be numerous members of the cartel more than willing to ‘help out’. Brand new Presidents normally only go after easy wins, and this one looks lined up for Donald Trump.

How the diplomatic cards are played is difficult to predict but played they will be and at present the new man behind the Resolute desk looks to hold the aces. In its current state, the oil market will be sensitive to an immediate shuttering of Iranian crude. The other consideration is that a cornered Iran still has the ability to lash out at the oil market. If it cannot export its crude, why would it let others? Therefore, it is inescapable not to consider an Iranian closure of the Strait of Hormuz and considering the current market state, send prices stratospheric. However, given the spare capacity of not only OPEC but the Americas too, any short-term hike in prices will be a gamble the new President Trump will be willing to take.

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