With results still rolling in, it has already been a historic night for the Democrats and a devastating one for Donald Trump and the Republicans. Seismic results in states such as Texas, Iowa, Kansas, North Carolina and South Carolina mean that the Democrats have control of both the Senate and the House of Representatives. The results reflect the discontent of US voters with Trump’s agenda, especially its impact on the cost of living.
Trump’s unpopular war against Iran has been a central issue for US citizens’, impacting the cost of living and leading to rising prices that have impacted everyone from small businesses to farmers. LG Energy Group looks at how this may impact Trump’s attitude to foreign policy which has had such a turbulent impact on energy prices across the past year.
Change of Tactic? Unlikely
Most analysts agree the results are unlikely to reverse Trump’s foreign policy, noting the President’s broad unilateral powers over diplomacy, tariffs under emergency authorities, troop movements, sanctions and executive agreements. Any bill that tries to force Trump’s hand could also face a veto which can only be overridden with the support of two-thirds of both chambers. Likewise, analysts also highlight that a lot of Democrats also share significant common ground in their opposition to the current Iranian regime.
The ways in which Congress could now push back under Democrat control are largely legislative and political tools. This includes funding, with Democrats now able to limit, condition or deny funding for military operations, meaning a reduction in how easily Trump’s foreign policy can be financed and defended. Greater oversight is also expected with subpoenas and hearings on the Iran war, tariff decisions and arms deals likely.
Despite these potential obstructions, some analysts worry that the results could lead Trump to double down. This was seen just before the elections with Trump announcing that ‘defensive strikes’ had again been launched against Iran. With the Democrats not set to formally take office until January, Trump could intensify his efforts before then.
Will the Markets Move?
With the potential for escalation, combined with the Iranian regime’s tactic of dragging out peace talks, pressuring the Strait of Hormuz and letting global oil prices weigh on voters around the world, energy markets are likely to experience continued volatility. After the attacks on Qesham Island earlier in the week, UK gas and power prices initially moved higher but following the election results front-month gas prices fell by around 1.3%. Brent Crude was also down 1.4% this morning to around $102 a barrel before settling at around $103.40 at the time of writing and oil and defence stocks weakened upon expectations of greater scrutiny of the conflict.
The International Energy Agency has warned that tightness in global gas markets is likely to persist into next year and Europe is at risk of ending the winter with record-low inventories. Even if Trump did soften his approach, the time it would take to replenish disrupted supplies through the reopening of Hormuz would be a long-term challenge, leaving energy markets to see continued pressure. Added to this, El Niño will also contribute further to competition between European and Asian buyers due to the potential of a colder winter in parts of Asia. Combined, these factors mean prices are likely to be volatile and elevated for consumers in the UK.
LG Energy Group’s View
Although the result could limit Trump’s ability to pursue erratic and self-harming approaches in both his foreign policy and politics, LG Energy Group unfortunately does not see the results as removing price premiums and risk, but they have changed the odds. A Democratic-controlled Congress means a negotiated end to the war is somewhat more likely but at the same time, Trump could double down and act more aggressively toward Iran. This risk in both directions is something that LG Energy Group will keep a close eye on for clients, ensuring that our strategies continue to future-proof against the potential for further shocks.
LG Energy Group’s advice for those thinking about their future energy prices is to avoid an all-or-nothing approach. With forward prices still high because of the war, it could be tempting to either lock in for fear of future escalation or to wait in hope of a peace deal. These dilemmas are why LG Energy Group always advocates flexible purchasing strategies, enabling purchasing of some volume now, keeping the rest open to capture any fall in the market if diplomacy succeeds, with clear price triggers for both upward and downward moves. The months between now and January, when the new Congress takes its seats, are a period of uncertainty that may be best used to consider future approaches.
LG Energy Group’s view is to take sensible positions instead of making reactive moves to headlines from Washington or Tehran, helping to reduce exposure to geopolitical risk whatever happens in US politics over the next two years.
If you are interested in learning more about LG Energy Group’s independent advice and market intelligence for navigating these turbulent periods, then contact us today at info@lgegroup.com or speak to your account manager if you are an existing client.