The new White House promises to be generous to energy. Some policies will be anything but
At 2016's CeraWeek, one of the US oil industry's biggest confabs, Oman's oil minister Mohammed bin Hamad al-Rumhi half joked that "next year, I may not be able to come here". Not long after, Donald Trump—then just a presidential hopeful—floated the idea of implementing a ban on all Muslims entering the US. Trump's run for the White House looked such a forlorn cause that Rumhi's line got a healthy laugh in the room.
Fast forward a year, and in the first days of his administration President Trump issued an executive order that looked a lot like that promised Muslim ban. The US constitution explicitly bans discrimination based on religion, so the measure was tweaked to stand any chance in the courts. Trump's order put a blanket 90-day embargo on entry to the US for citizens from seven Muslim-majority countries that the Obama administration had already deemed a unique threat—Iran, Iraq, Syria, Libya, Sudan, Yemen and Somalia—while giving his cabinet the authority to expand the list in the future.
It sparked a massive backlash. Protesters took to American airports by the thousands. Civil-liberty groups and some states are challenging the order in court (at press time the legal challenge had led to a suspension of the order and appeared destined for the Supreme Court). Both Democrats and Republicans in Congress criticised the ban's bungled and confusing roll out, which left thousands of green card and other visa holders in the lurch.
Much of corporate America got in on the action. The tech sector, which has been built by immigrant fingertips, complained and more than 100 top companies filed suit against the ban, saying it would hurt their bottom line. Old economy stalwarts were similarly outspoken. "Core to our values are respect for people," Ford's chief executive Mark Fields said. "We don't support policies that are counter to our values."
Though many oil and gas executives seethed in private, their public silence was conspicuous. This is odd, because no American industry is as economically entwined with these seven countries, or the Muslim world more broadly, as oil and gas. ExxonMobil has operations in Iraq and Yemen. Chevron is working in Iraqi Kurdistan. Oilfield services and engineering companies like Schlumberger, Halliburton, Baker Hughes and Bechtel have contracts and local partners throughout these countries. Petroleum Economist asked all of them for their views. None offered one.
There may be some transactionalism at work. Once weary of the Donald's candidacy, the industry has largely come around to the Trump presidency, especially after scoring several victories so quickly. The Keystone XL (KXL) and Dakota Access Pipelines were singled out in supportive executive orders. Anti-corruption rules put in place under the Dodd-Frank financial reform bill, forcing oil companies to detail payments to foreign governments, have been overturned. Pesky environmental regulations have been ditched. The American Petroleum Institute, the industry's leading lobbying group, has been breathless in its praise for the new administration.
Yet the Trump administration's pernicious nationalism could do much harm to American oil companies. The immigration ban has already disrupted the free movement of the oil industry's famously globetrotting workforce. At least one Chevron engineer was reportedly detained at a Houston airport. This year's Ceraweek lineup includes the Iranian-born head of the Gas Exporting Countries Forum and the head of Iraq's State Oil Marketing Organisation. A meeting scheduled for late February in Washington DC between investors and Libyan politicians was cancelled. Countless other interactions—crucial to the global oil and gas business—could be stymied by the sweeping anti-immigration moves.
The global oil industry has proselytised the virtues of free trade for decades. Trump isn't a convert
As the White House feeds a narrative that the US is at war with Islam itself, American companies will face new problems in the Middle East. Steve Bannon, Trump's chief strategist and now member of the National Security Council, was plain in 2014: "We're now, I believe, at the beginning stages of a global war against Islamic fascism," he said. That's a dire interpretation for US investors in Muslim countries.
Beware, too, the perils of economic nationalism. The industry celebrated the KXL executive order and promises to expedite US pipeline projects, but ignored provisions requiring TransCanada, KXL's builder, to exclusively buy and use American steel, manufactured from American raw materials. This policy will slow pipeline projects while domestic steel producers expand capacity. Costs will rise. It's not correct to assume Trump will reverse this stipulation when he sees sense, either. The president doubled down on the issue just days after signing his decree, saying he would refuse requests for the government to use its power of eminent domain to acquire private land for companies that didn't buy and use exclusively American steel.
Trump's "America First" trade policy is also unsettling energy executives. The global oil industry has proselytised the virtues of free trade for decades. Trump isn't a convert. The president's spokesperson in late January floated the idea of imposing a 20% tariff on Mexican imports after a dust up between Trump and Mexican President Enrique Peña Nieto over Trump's vow to make Mexico pay for a wall designed to keep Peña Nieto's countrymen out of the US.
On 3 February, Trump took to twitter: "Countries charge US companies taxes or tariffs while the US charges them nothing or little. We should charge them SAME as they charge us!" The idea of a border tax is gaining traction in Washington. Some oil producers might even gain in the short run from this. But it would be Pyrrhic victory if it sparked a spiraling trade war. It's not hard to see how the free flow of oil and gas throughout global markets could get caught up in tit-for-tat protectionism.
The oil industry has a newfound influence in Washington after eight years on the outside. It has used that influence to score some quick policy wins. It shouldn't ignore a larger battle.