There was little disguising the schadenfreude among clean energy advocates as oil companies – whose executives had heavily backed Donald Trump’s presidential campaign – reaped the whirlwind of an imminent global recession.
Trump’s new tariff war, along with a decision by oil-producing countries to increase supply by 400,000 barrels a day, saw the biggest sell-off in oil in years, as prices of brent crude fell 13% within two days to about $63 a barrel.
That is down nearly a third over the past year, and the lowest level since Covid. Analysts spent the weekend furiously revising their oil-price targets in the face of a possible recession.
The oil plunge will have unsettled companies that pivoted back to oil and gas after Trump’s election in December, when he made “drill, baby, drill” a cornerstone of his plan to assert “US energy dominance”.
Speaking during his campaign, he said: “We have more liquid gold under our feet than any other country by far, we are a nation that has the opportunity to make an absolute fortune with its energy.”
Based on this, oil billionaires including Continental Resources’ Harold Hamm, Energy Transfer’s Kelcy Warren, Hilcorp’s Jeffery Hildebrand, and CrownRock’s Tim Dunn ladled out more than $16m in donations to Trump’s campaign.
It turns out that none of them knew quite what they were buying.
Trump has raised the ire of his oil backers by now speaking of pushing oil prices under $50 a barrel – below the $65 price that many oil firms need to make a profit on new wells, according to a survey by the Federal Reserve Bank of Dallas.
In that Fed survey last week, Bloomberg reported that shale executives turned on Trump over his tariff agenda, with one calling it a disaster for commodity markets. Another said: “I have never felt more uncertainty about our business in my entire 40-plus-year career.”
Pulling in different directions
It has also spotlighted Trump’s conflicting priorities: As one unidentified oil executive told the Wall Street Journal, “there cannot be US energy dominance and $50 per barrel oil”.
Conversely, for those invested in renewables, this looks like the smarter long-term trade.
French oil giant TotalEnergies last week signed a deal to buy 1GW worth of wind and solar projects in Canada from RES, the world’s largest independent renewables firm.
TotalEnergies says it is committed to pivoting its business towards renewables, planning to hike its installed capacity to 35GW by the end of this year, from 26GW – but sceptics remain unconvinced that a company which made its name on oil really plans such a radical switch.
Nonetheless, the Trump ructions could fortify confidence among renewables firms.
Mamiki Matlawa, business development executive at Joburg-based energy infrastructure company Actom, says the ructions in the oil market are a boon for the renewable energy sector.
“As the oil market becomes more unpredictable, we’ve seen a lot of interest rising in renewables not just in South Africa, but across the globe,” she tells Currency.
The tariff wars, she says, will work in the favour of smaller countries like South Africa in other ways too.
“Markets like South Africa will benefit in interest from other countries like China, which are moving away from the US because of the trade obstacles. So, what we produce in South Africa, in terms of renewable energy and infrastructure, could find a much larger market,” she says.
But in the US, the higher tariffs will likely chill that country’s shift to renewable energy, as the tariffs push up imports of equipment from Asia, including solar panels, wind blades and energy systems.
Where’s oil headed from here?
More than 90% of lithium-ion energy storage cells used in the US were imported from China, which now faces an extra 34% tariff, according to the Financial Times.
“Existing tariffs on battery storage, the new Trump tariffs and previously planned tariff increases announced by the Biden administration will bring total duties on Chinese cells up to 82.4% in 2026,” the newspaper said.
So, while oil firms may be struggling to produce enough energy to power Trump’s America, renewables firms in that country won’t be in the pound seats either.
Much, of course, depends on the direction of the oil price, and whether Trump will stick to his tariff plans amid growing and widespread criticism.
While no-one knows where the oil price will go, the signs are inauspicious.
Investment bank Goldman Sachs slashed its forecast twice in a week for oil prices to $62 a barrel by December, reflecting the “forecast of a stagnating US economy” while warning that risks “remain to the downside, because recession risk has grown further”.
At these prices, the economics of fracking are very much in question – which is why fracking companies listed in the US were savaged in the sell-off.
Liberty Energy, a company previously run by Trump’s own energy secretary Chris Wright, saw its stock fall 29% within a few days.
And that’s besides the knock-on effect on costs. As the Wall Street Journal pointed out: “Trump’s steel tariffs are already lifting their well costs” too.
“If we have a period of sustained low oil prices, you will see cuts,” Andy Lipow, president of energy consultancy Lipow Oil Associates, told the newspaper.
“They may decide to cut spending or postpone additional spending until they let the tariff impacts play out over the next few months.”
A recession would be bad for the US – but it could even be worse for some of the oil-producing countries that had been investing across the continent, including in South Africa.
In particular, the International Monetary Fund said Saudi Arabia needs oil above $90 a barrel to balance its budget, putting a brake on that country’s efforts to expand its economic influence beyond its borders and diversify its revenue.
Other oil producing countries will also feel the pain. Trump hit Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates with 10% tariffs, while Iraq faces a 39% tariff and Syria 41%.
As Vandana Hari, founder of oil market consultancy Vanda Insights, said: “It’s hard to see a floor for crude unless the panic in the markets subsides, and it’s hard to see that happening unless Trump says something to arrest snowballing fears over a global trade war and recession.”
At this point, it seems very much like it’s the oil market versus the ego of a president who detests backing down in the face of criticism. With oil prices in freefall, the market seems to be betting he isn’t about to change course.
Top image: Rawpixel/Currency collages.
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