The War Between Trump and OPEC

On July 4, 2018, President Trump called on OPEC to take action and reduce oil prices. Trump said on Twitter, "The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!"

The high cost of oil is partly due to OPEC's production limits which were made with the intent to help increase oil prices. However, the high oil prices are also partly due to Trump's own foreign policy. In particular, the Trump administration's decision to impose sanctions on Iran has placed upward pressure on oil prices. Fortunately, Saudi Arabia has increased oil production which is offsetting the decreased oil output from Iran. Since Saudi Arabia's increased production is now simply offsetting Iran's decreased supply to the US this means that the extra supply of oil being produced is around 0 which means that oil prices will continue to rise due to low supply.

Although Saudi Arabia's increased oil production has been somewhat offsetting the decrease in oil production from Iran, Iran plans to use their oil resources and strategic position at the Strait of Hormuz to decrease oil supply and put pressure on the United States. Ismail Kowsari, an Iranian Revolutionary Guards commander said, “If they want to stop Iranian oil exports, we will not allow any oil shipment to pass through the Strait of Hormuz." Iran's OPEC Governor Hossein Kazempour Ardebili explained to the Shana news agency, "Donald Trump's call on other countries to stop buying crude oil from Iran and putting European companies under pressure with Nigeria and Libya being crisis-stricken, Venezuela's crude oil output having plunged and Saudi Arabia's consumption increasing due to summer, would be a kind of self-harm for the US as it would lead to dramatic price hikes in the oil market."


Investors are obviously worried about the rhetoric coming out of Iran about blocking the US' access to oil. However, on the futures market in general oil as a commodity is doing well. According to the Wall Street Journal, on Thursday morning oil futures gained to multi-year highs and the global oil benchmark, Brent Crude, rose to $78.36 on London’s ICE Futures exchange, a 0.14% increase. West Texas Intermediate futures gained .0.73% to $74.71 per barrel on the New York Mercantile Exchange.

President Trump's reaction to increases in oil prices by blaming OPEC when Trump's own foreign policy may be to blame is not surprising when it's taken into consideration that Trump often blames policy mistakes on scapegoats. But oil prices is something Trump must get right if he wants to be president for a second term. When voting in the next presidential election voters will be looking closely at oil prices and the state of the American economy.