Trump’s Trade War Dominates Energy Markets

Oil prices this week are being dictated by yet another highly emotional trade war round that seemed to come out of nowhere. If Beijing really wants to dig in against Trump now, it will target US crude oil and LNG, and that's where the backlash will really bite. Trump may well have overplayed his hand this time around.

Right before Trump announced his latest tariff threat (which has now gone beyond threat), Chinese oil refiners were picking up momentum with their US crude oil purchases. They were also preparing to jump in on some US LNG supply deals. Right about now, the US LNG industry is probably experiencing a bit of uncertainty because China is one of its top market destinations. Beijing already has a 10% tariff on US LNG imports, and we might see a 25% retaliatory tariff now. Can China replace US LNG imports? Yes, alternatives come from Qatar, Russia and Australia (the key beneficiaries here). The tariff war, then, means a leg up for the LNG competition and it won't win Trump any supporters in the oil and gas industry.

The Biggest Story in the Oil Patch …

Libya's internationally recognized Government of National Accord (GNA) is getting desperate now and they're explicitly targeting oil but also throwing in, for good measure, dozens of other companies connected to countries that are on this wrong side of the conflict. Specifically, they're targeting French oil giant Total SA, and while they won't say this is politically motivated outright, the message clear. The French have been supporting General Haftar's offensive on Tripoli, and the GNA isn't having it. This week, they pulled Total SA's license to operate. Total's license expired and they have three months to reapply, according to Libya's GNA-controlled Ministry of Economy. Total produces some 1 million bpd in Libya.

There's quite a lot at stake for Total's operational license. It's got a 75% stake in three offshore zones operated by Al Jurf, presumably not affected by the operating license, along with a 16.33% stake in the Waha Concessions. What is affected is Total's interest in the onshore blocks of the massive El Sharara field, which has had its ups and downs lately in terms of security. It's other E&P operations at its Mabruk site had already been suspended earlier by Total due to the conflict.

Two of the other big names among the total of 40 foreign companies that just had their operating licenses suspended are also French: Thales (aerospace) and Alcatel (telecoms).

German Seimens is also on the list, even though Germany has backed UN calls for a ceasefire in Tripoli (it's not really enough from the GNA's standpoint).

The GNA may has played its hand too soon, though, because something like this could push the National Oil Company further towards General Haftar. It's been attempting to play both sides, and both camps have their tentacles in the NOC. The NOC could overrule the GNA on the operating licenses, and this would play directly into Haftar's hands. Nor is this just about pressuring Europe for support on the GNA's part. The GNA knows that Haftar can start exporting oil on his own at any time.

Intelligence sources on the ground in Libya say that Haftar has already started unilaterally exporting oil from the country's east, through a parallel NOC operating out of Benghazi. Sources cite a contract signed between the Benghazi NOC and the Sulaco Group for the export of 2 million barrels of oil to leave from the port of Marsa El Hariga over the next month and a half. In collusion with this effort is an NOC subsidiary called Agoco. This is where the NOC divisions really split in this conflict, and there should be concerns for oil watchers that the Tripoli NOC will be forced to side with Haftar and the GNA's latest move will backfire.

The Biggest Story in the Renewable Energy Patch …

Again, it's battery metals, and rare earth metals - and this time, it's about making sure that China doesn't have the upper hand. This week, a group of US Senators introduced legislation designed to boost domestic production of "critical minerals" that we frequently end up importing from China, particularly for EV batteries. It's a game tied to the trade war, but the administration can't afford to target these metals right now.

The new legislation follows warnings from Elon Musk that we're facing a global shortage of battery metals precisely because of underinvestment in the mining sector. Musk also specifically called on the US government to step in and ensure that domestic production has a leg to stand on. He pushed the right buttons here, indeed.

What's often ignored as the trade war rages on and rhetoric is confined to things that the administration knows it can feasibly attack is the real situation with critical minerals. China is the real powerhouse here, controlling the bulk of the raw materials for the tech industry. It's not as simple as sanctioning Iranian oil and then finding replacement supply.