By John Richardson
WHEN he was a candidate for the presidency of the US, Donald Trump promised to “bomb the hell” out of oilfields controlled by ISIL. He also declared: “I’m good at war in a certain way” and “I love war… including with nukes, yes, including with nukes.”
What is said about policy during any election campaign very often doesn’t end up as actual policy when a successful candidate is in office. And people will also point to moderating influences surrounding Mr Trump. For example, Rex Tillerson, the nominee for US Secretary of State, made clear his foreign policy differences with Mr Trump during his confirmation hearing yesterday.
But at the very least in terms of economic policy, which is centred on putting America first, the president-elect seems certain to govern the way he has promised to govern. This in itself could have major geopolitical consequences.
Mr Trump, for instance, re-affirmed his economic approach to China in this 2 January Tweet, while linking the economic with the geopolitical with a comment on North Korea:
China has been taking out massive amounts of money & wealth from the US in totally one-sided trade, but won’t help with North Korea. Nice!
One can therefore draw a scenario where a US-China trade war leads to military confrontation over China’s Nine-Dash Line in the East China Sea.
It also seems quite possible, that, despite the moderating voices around him, Mr Trump will follow-through on at least some of his foreign policy rhetoric. The change we are dealing can be explained by looking at the two definitions of the word diplomacy in the Oxford English Dictionary:
- The profession, activity, or skill of managing international relations, typically by a country’s representatives abroad.
- The art of dealing with people in a sensitive and tactful way.
Successful execution of the first definition of this word has traditionally been linked with the second definition, even if sensitivity and tact have often failed in practice.
Some people will of course argue that given the state of the world today, a new approach is needed – one based on forcing countries to the negotiating table through outspoken rhetoric that isn’t meant to be taken that seriously. “Everything Mr Trump says and does will be transaction based, everything will be done deal by deal, and in any deal you start with an extreme position and then compromise,” said a senior chemicals industry executive.
You will disagree or agree with this comment, but that is actually not the main point. The main point is that because Mr Trump is radically departing from the consensus view of what makes good diplomacy, nobody can be certain about the outcomes.
The impact of the Trump presidency could be so wide ranging that step by step, piece by piece, you have to assemble the jigsaw puzzle in order to see the whole picture of what it will mean for your chemicals business. Time to do this has now almost run out with Mr Trump’s 20 January inauguration just a few days away.
Stretching this analogy further, you need to complete multiple jigsaw puzzles, or rather multiple highly complex scenarios – each of which will be in a constant stage of change. This is why in March we will be updating our 2016 Study, Demand: The New Direction for Profit. We will provide with your more details on this shortly.
Here, though, to help you in your planning here are three very basic scenarios for Brent crude prices in 2017. This gives just a flavour of the huge uncertainty and volatility that we confront over the rest of this year:
- Prices average $35.08/bbl. OPEC and non-OPEC producers initially stick to their agreed production cuts, but US shale oil producers quickly fill the supply gap. Eventually, therefore, OPEC and non-OPEC players abandon their cuts in an attempt to win back market share. Meanwhile, the global economy is in recession.
- The ICIS Consulting base case is that prices will average $57.71/bbl. This compares with the actual 2017 average of $42.91/bbl. US shale oil fails to fill the gap resulting from production cuts, the reductions as a result stay in place and the global economy is fine.
- Crude prices average $87.42/bb on disruptions to supply caused by geopolitics. The global economy is already in recession. Expensive crude deepens this recession.
In my view, lower than $35/bbl remains the long term trend.