If the Trump administration seeks to quickly unleash US energy dominance, then it will fail, because global markets—not domestic policies—drive decisions that US companies make about energy production.
The second Trump administration has stated that its top priorities on energy policy are to rapidly unleash US “energy dominance” and dramatically reduce consumer energy prices. In this blog post, I’ll describe why it is not possible to achieve both goals simultaneously, and why an ability to achieve either goal is severely limited by the realities of domestic and global energy markets.
In the first half of the twentieth century, the United States was the world’s largest oil and natural gas producer. Abundant US oil helped the Allies win World War II, and abundant US fossil fuels helped fuel widespread prosperity in the decades that followed. But in the 1970s and 1980s, US oil and gas production plateaued and began to fall. Responding to the oil shocks of the 1970s, the federal government invested in a wide range of energy technologies, including the production of natural gas from shale rocks. Several decades later, innovators in the US oil and gas industry built on those federal investments to launch the shale revolution, producing shale gas and “tight” oil in enormous quantities. Today, the United States produces more oil and natural gas than any country in history.
However, dreams of US energy independence are illusory. In 2023 (the most recent available data), the United States produced roughly 20 and 25 percent of global oil and gas, respectively. But more importantly, oil markets—and, increasingly, natural gas markets—are global. Gasoline prices, which fluctuate with crude oil prices, respond quickly to events around the world. For example, a recession in China that weakens Chinese oil demand would reduce global demand, thereby reducing pump prices for US drivers. Similarly, a war between major oil producers in the Middle East would threaten global supply, leading to a price spike that hits US pocketbooks.
Government policies also can make a difference. For example, regulations on methane emissions can modestly increase costs for oil and gas producers. (Regulations also can increase revenue because companies will have more natural gas to sell.) But these regulatory factors are small. In the short term, market prices (including expectations about future prices) are the key factor that induce companies to drill new wells or open new mines.
Unleashing Energy Dominance
As I wrote eight years ago at the outset of the first Trump administration, it is not possible to “dominate” global energy markets. Take OPEC+, for example. The cartel supplies roughly 40 percent of the world’s oil (roughly double the US share) and generally seeks to maintain prices at a “Goldilocks” level high enough to support each member nation’s domestic political objectives, but low enough to ensure that those prices don’t destroy global oil demand.
This balancing act is hardly a position of “dominance.” It is, instead, a position of responsiveness: to trends in the global economy; to each member’s political and economic precarities; and to emerging technologies like electric vehicles. Each of these issues, and others, threaten to unbalance the tightrope walk that OPEC+ seeks constantly to manage.
In the United States, “dominance” is even more implausible. Unlike most OPEC+ nations, where oil and gas production is overseen by government-run entities, US producers are privately owned and number in the thousands. These companies are too disparate to coordinate, responding primarily to prices rather than government mandates. (Besides which, it also would be illegal for US companies to collude and fix prices.) Each company determines its strategy based on its view of the global market forces that shape oil and gas prices. So, it’s certainly possible that US oil and gas production will continue to grow in the near term, but that will happen only if prices are sufficiently high to support industry investment. The recent tumble in oil prices from around $80 per barrel in January to $60 per barrel this week amid tariff-induced recession fears, and the likelihood that this reduction will lead companies to take offline substantial numbers of drilling rigs, illustrates both the volatility of oil prices and the sensitivity of drilling companies to price.
Credit: mTaira / Shutterstock
Where the administration’s policies can make more of a difference is over the longer term. For example, the US Department of the Interior likely will speed up leasing for new drilling on federally owned lands and in federal waters. In some cases, such as the North Slope of Alaska, industry demand for these leases may be quite low. But in other cases, such as parts of the deepwater Gulf or New Mexico’s Permian Basin, industry players will be eager to snatch up drilling rights. However, it will take years (or in some cases, decades) until any new oil and gas would flow from leases offered today.
The administration also has signaled an eagerness to expand liquefied natural gas (LNG) exports, which requires approval from the US Department of Energy. (Technically, permits are required only to export LNG to countries with which the United States does not have a free trade agreement. In practice, the permits are required to attract investment, because the United States does not have free trade agreements with most major LNG-importing nations.) Those approvals surely will sail through this Department of Energy and could even help support highly ambitious (and possibly non-economic) efforts to build a $44-billion pipeline to export LNG from Alaska’s North Slope. Interestingly, Japanese, Korean, and Taiwanese buyers have lined up to support this project, possibly with an eye toward currying favor from the tariff-heavy economic policies of this administration.
Taken together, efforts by the Trump administration to encourage new oil and gas development will expand opportunities for companies to produce and export more oil and gas. But these opportunities will unfold over years—not weeks or months—and the scale of new investment primarily will be driven by global market forces and continued industry innovation. Indeed, in the short and medium term, increased exports of natural gas will increase domestic prices.
If: the Trump administration seeks to quickly unleash US “energy dominance,”
Then: the Trump administration will fail, because global markets—not domestic policies—drive the decisions that US companies make about energy production.
Reducing Consumer Costs
What about the goal of reducing US energy costs? Let’s start with oil markets and gasoline prices. Here, the federal government has some tools at its disposal, although the strategies come with marked uncertainties and downsides. First, the president could—as he has done in recent weeks—cajole lower-cost oil producers such as Saudi Arabia to increase their output, putting downward pressure on prices. (OPEC+ just announced that they will speed up their increases to production, although how much of this was related to Trump’s requests is unclear.) Notably, the president cannot as effectively make the same request of US producers because (as noted above) they respond to prices, not the government.
Second, Congress could reduce or eliminate the federal excise tax on gasoline and diesel. Currently set at 18.4 and 24.4 cents per gallon of gasoline and diesel, respectively, this tax is the primary mechanism for funding US transportation infrastructure. Slashing the gas tax would reduce prices at the pump, although the reduced tax rate would not fully pass through to consumers, as oil refiners and gasoline retailers would likely increase their margins and capture some proportion of the foregone tax.
Credit: Scott Olson / Getty Images
But reducing or eliminating the federal government’s main source of revenue for transportation spending comes with obvious downsides. For years, infrastructure needs have outpaced the revenue raised by the gas tax, and slashing transportation revenues would exacerbate the problem of historically large—and mounting—federal debt. (The United States currently spends more on debt service than it does on defense.) Resources for the Future (RFF) research from 2023 argues that state and federal taxes on transportation should actually be considerably higher to account for the social costs of pollution, congestion, and accidents.
Outside of oil markets, however, the Trump administration has few tools to reduce energy bills. In the electricity sector, prices often are set through complex regulatory processes that are overseen by state governments. Presidents do not have tools that can directly affect those regulatory processes, and the growing demand for electricity across the US economy is likely to push prices higher—not lower—in the coming years. However, presidents do appoint commissioners to the Federal Energy Regulatory Commission. And those commissioners develop rules, such as processes for interconnecting new generators with the transmission grid, that will affect future electricity prices in the years and decades ahead.
Congress also has tools at its disposal and has helped reduce electricity prices through tax incentives in the Inflation Reduction Act. But several Trump administration priorities and executive actions will, in fact, raise consumer prices. Recent RFF work has demonstrated that eliminating key tax incentives from the Inflation Reduction Act—as the administration has signaled it would like to do—would raise household electricity costs by hundreds of dollars per year.
Another major cost for consumers is natural gas that is used to heat space and water in residential and commercial buildings, produce electricity, and provide process heat for industrial manufacturers. For most of the last 15 years, natural gas prices have been historically low due to the shale revolution. But the Trump administration’s goal of increasing LNG exports increasingly will link US markets with global ones, where prices are much higher. Simply put, exporting more LNG will put upward pressure on domestic prices, raising costs for consumers across the economy.
How much would consumers notice these potential effects? The answer varies across energy types. Gasoline prices, which are festooned across billboards on thousands of street corners, are probably the most well-known prices of any good in the nation. But the same is not true for electricity. In a recent Resources Radio episode, RFF Fellow Jenya Kahn-Lang describes her work that shows consumers typically have no idea what a “good” price is for electricity.
For the lowest-income households, recent executive actions may result in more visible near-term energy price shocks. Specifically, recent reporting indicates that the federal staff of the Low Income Home Energy Assistance Program, which oversees direct financial assistance to millions of households, has been eliminated. This sudden downsizing raises serious questions about whether the program will continue to function and ease energy burdens for the millions of families who face dire choices of whether to pay for energy services, basic medical care, or food.
If: the Trump administration seeks to reduce consumer energy prices dramatically,
Then: its options are limited, particularly in electricity and natural gas markets. And, in several cases, the administration’s policies will increase energy prices.
You Can’t Have It Both Ways
I think it’s safe to say that, when it comes to energy policy, the Trump administration likely won’t be able to concurrently achieve its two core goals. The realities of domestic and global energy markets mean that many of the policies the administration has expressed support for will work at cross purposes. So, we are left with plenty of unanswered questions.
For example, if tariffs dent global economic growth and oil prices slump, oil companies will reduce drilling, and output will fall within months. Would the Trump administration act to support the industry and encourage new drilling (and it’s not clear how the administration could accomplish this), or take the win of lower gasoline prices?
If domestic natural gas prices begin to rise because of surging electricity demand and the growing link between US and international markets, will the Trump administration restrict exports to protect consumer prices? Or would the administration rather see US LNG unleashed further upon global markets?
When the rubber meets the road, the administration will need to choose whether to prioritize the energy industry (which prefers high prices) or domestic consumers (who want prices low). We can’t have it both ways.
If: the Trump administration wants to reduce consumer energy prices and unleash “energy dominance” simultaneously,
Then: the administration will fail, because lower consumer prices mean less incentive for producers to increase output.
As an oil and gas executive said in response to a recent survey from the Dallas Federal Reserve, “There cannot be ‘US energy dominance’ and $50 per-barrel oil; those two statements are contradictory.”
Editor’s Note (April 10, 2025): A sentence was added to the text after first publishing to reflect current events and the extreme sensitivity of companies to changes in the price of oil.
