The presidential elections in the United States (US) cause fluctuations in the oil market due to the energy policies of different political parties. The Republican Party generally adopts less regulation and incentive policies in the energy sector, while the Democratic Party takes a stricter stance on environmental protection and transition to renewable energy. These policy changes have effects on oil prices, supply-demand balance and sector investments.
For example, with Joe Biden coming to power in the 2020 elections, the US imposed stricter environmental regulations and focused on clean energy investments, affecting global oil supply and demand, leading to volatility in prices.[i] This situation can be shown as one of the factors that increase oil prices due to concerns that the US may reduce oil production.[ii]
US energy policies have a direct impact on production costs and supply security. For example, during the periods when Republican presidents came to power, incentives for hydrocarbon production were increased and investments were made in production capacity to reduce oil prices. In contrast, Democratic presidents aimed to implement more restrictive policies on oil production by prioritizing an environmentally friendly production approach and renewable energy.
The Biden administration’s pressure on fossil fuel projects, especially in 2022, and the limitations it has imposed on infrastructure projects have led to increased production costs and weakened the US’s influence in global oil markets.[iii] This situation, together with future elections, may create imbalances in the US’s supply security and affect its competitiveness in the global market.
The impact of US elections on oil prices generally creates fluctuations in the short term, but can also lead to permanent changes in the long term. For example, with Donald Trump coming to power in the 2016 elections, there was a significant increase in oil production and a relative decrease in prices. During the Biden era, there were supply restrictions due to environmentally sensitive policies, which caused prices to rise again.[iv]
If Democrats win again in the upcoming elections, it is expected that environmental regulations will increase and more investments will be made to reduce carbon emissions. In this case, it is predicted that stricter regulations will be imposed on fossil fuel production, which will reduce oil supply and increase prices. On the contrary, if the Republicans win, a broader energy production strategy could increase oil supply and decrease prices.
US elections affect not only domestic energy policies but also strategies for the global energy transition. The Democratic Party’s investments in renewable energy and efforts to reduce fossil fuel use could create a global trend toward reducing oil consumption. This situation has the potential to reduce oil demand and stabilize prices in the long run.[v]
The US taking a leading role in this process could also lead other countries to renewable energy and cause a change in the supply-demand balance in the global oil economy. In this context, according to the election results, the US taking the lead in the energy transition could significantly affect oil demand by accelerating the transition to renewable energy worldwide.
Political tensions in the Middle East, and especially tensions in Israel-Iran relations, are causing fluctuations in the global oil market. Israel’s recent statements that its military steps against Iran should not focus on oil infrastructure have somewhat eased concerns about oil supply disruptions and led to a decline in prices. Developments in the energy policies of major consumers such as the US and China, especially China’s moves to address slowing economic growth and the increase in oil stocks in the US, have had an impact on prices.
A report in the Washington Post that Israel could attack Iranian military facilities has caused oil prices to fall, partly reducing the risk of escalating conflict in the Middle East, which accounts for a third of global supply. Brent crude fell nearly 2.3% to $75 a barrel, while U.S. crude oil fell below $72 a barrel. Netanyahu’s statement to the Biden administration that the targets of attacks would be military facilities rather than energy infrastructure has created broader market relief.[vi]
Oil prices have fluctuated in recent weeks due to political developments in the Middle East as well as concerns about a slowdown in the Chinese economy. The US has decided to provide military support to the region to protect its ally, particularly following Hezbollah’s attacks on Israel. This has raised concerns that the conflict could escalate into a cycle of retaliation and disrupt oil exports from the Middle East.
On the other hand, China’s steps to maintain its growth momentum also create uncertainty in oil demand. China’s failure to announce new incentives in critical areas such as the real estate sector has increased growth concerns and affected prices due to concerns that oil demand may fall. The conflicts in the Middle East and the role of the Chinese economy in oil demand stand out as key determinants in the global oil market.[vii]
The increase in US crude oil inventories has raised questions about the supply-demand balance in global markets. According to data from the American Petroleum Institute, inventories have increased by 10.9 million barrels, well above market expectations. This increase has increased expectations of excess supply and limited the rise in prices. At the same time, OPEC’s lowering of demand estimates supports long-term concerns about excess supply in the market.[viii]
[i] Smith, J. (2021). The Impact of U.S. Presidential Elections on Global Oil Markets. Journal of Energy Economics, 45(2), 123-145.
[ii] International Energy Agency (IEA). (2022). Oil Market Report.
[iii] U.S. Energy Information Administration (EIA). (2023). U.S. Energy Policy and Its Impact on Fossil Fuel Production.
[iv] Smith, J. (2021). The Impact of U.S. Presidential Elections on Global Oil Markets. Journal of Energy Economics, 45(2), 123-145.
[v] International Renewable Energy Agency (IRENA). (2022). Global Energy Transition and Its Impact on Fossil Fuels.
[vi] “Petrol arz endişesinin düşmesiyle geriledi”, Bloomberg, https://www.bloomberght.com/petrol-arz-endisesinin-dusmesiyle-geriledi-2362315, (Date Accession: 28.10.2024).
[vii] “Çin’den beklenen desteği bulamayan petrolde gözler Orta Doğu’da”, Bloomberg, https://www.bloomberght.com/cin-den-beklenen-destegi-bulamayan-petrolde-gozler-orta-dogu-da-2362246, (Date Accession: 28.10.2024).
[viii] “Petrolde jeopolitik gerginlik”, Bloomberg, https://www.bloomberght.com/petrolde-jeopolitik-gerginlik-2362402, (Date Accession: 28.10.2024).
