There’s a significant risk of inflation for the US, especially if tariffs on Canadian oil imports end up at 25%. Canadian oil represents ten times the volume of what Saudi Arabia exports to the US. While Trump hasn’t explicitly promised lower oil prices, he has committed to reducing gasoline prices and improving overall quality of life, so introducing inflationary policies like these could contradict those promises. On fundamentals, there’s little for oil markets to react to at this stage. As of now, we haven’t seen tangible shifts in physical movements or significant changes on the water to warrant a reaction. Politically, especially in the Middle East, stakeholders are in a "wait-and-see" mode, and the markets seem to be following suit. There’s no point in overreacting until there’s greater clarity, especially since implementing these tariffs will face numerous challenges.
Might we see Saudi Arabia and Iran resuming détente talks with a ceasefire in the region?
It seems that Iran is trying to regain at least a semblance of control over the regional playing field. Recent events have exposed their vulnerabilities, political, military, and territorial, which likely contributed to their encouragement of Hezbollah and Lebanon’s political elite to agree to a ceasefire. As for Iran’s broader strategy, they are likely focused on reestablishing their deterrent security while simultaneously improving relationships across the GCC. This includes managing risks associated with the incoming Trump administration. And while there have been tentative overtures to reopen nuclear discussions with Europe, these are still in the very early stages. Progress on that front, hinges on repairing Iran’s relationship with the IAEA and European capitals, which has deteriorated significantly in recent months. Rapprochement between Saudi Arabia and Iran has shown promise, though substantive steps are still needed, particularly in the economic realm. A meaningful announcement of investment, especially in sectors not subject to sanctions, could signal real progress. However, any such developments may face pushback from the Trump administration. Behind the scenes, Gulf nations may be engaging in backchannel discussions with the incoming US team, seeking assurances that their regional efforts won’t be undermined. They might argue, “We understand your stance on Iran, but we’re trying to secure our backyard and ensure stability.” Multiple layers of negotiation are undoubtedly underway and will likely continue right up until January 20th and beyond.
Outlook for US-China relations in the months ahead?
We don’t anticipate China reacting swiftly to any initial moves by the Trump administration. Domination of the South China Sea remains both a political and security priority for both countries. I’d expect US-China relations to remain strained, with a rocky start to the new administration. Interestingly, one of Trump’s incoming National Security appointees has indicated a potential effort to engage China, perhaps as part of a broader strategy to reduce Iranian oil exports. This could result in a temporary thaw, as Trump may seek China’s cooperation in shifting their oil purchases away from Iran, potentially even toward US crude.
US-Russia relations under Trump 2.0?
That’s a bit more complicated. While Trump’s personal rhetoric about Putin has often been positive, his policies toward Russia haven’t always aligned with US strategic interests or several incoming members of his administration who are notably hawkish on Russia. We could see him continue certain policies, such as stepping back from Ukraine support, which aligns with Russia’s interests. However, broader US strategic concerns, many of which will face pushback in Congress, may prevent him from fully accommodating Russia’s agenda. This dynamic played out during his first term, and I expect we’ll see similar tensions in a second term.