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Your guide to what Trump’s second term means for Washington, business and the world
I wonder how Narendra Modi is feeling right now. Last month the Indian prime minister was coerced into agreeing a draft trade deal with Donald Trump, vaguely promising that India would stop buying cheap Russian oil and import fossil fuels from the US instead. With the price of oil and gas surging after the US bombing of Iran, Modi’s incentive is ever stronger to renege — and to diversify out of hydrocarbons altogether and reduce all trade and economic reliance on the US.
The immediate impact of the Iran attacks in terms of higher oil prices is evident, though the wider economic damage may not be catastrophic. Unlike the Red Sea and its route to the Suez Canal, threatened since 2023 by attacks from the Houthi militants, the Gulf is not a major global artery for non-energy shipping.
The further erosion of US geoeconomic leadership, however, is substantial. For governments outside the US and China, particularly low and middle-income countries, the competing economic superpower offers are now as follows. From the US you get forced into trade deals promising a future of burning fossil fuels whose price is subject to wildly destructive US adventurism. From China you get reliably cheap EVs and green tech to generate renewables. Admittedly these come with other forms of economic coercion attached, such as controls on rare earth minerals, but at least they don’t deliver juddering shocks to growth.
Whatever Trump does next, unless he actually starts carpet-bombing solar farms, it’s unlikely to threaten a development model based on renewable energy. The International Energy Agency last year reduced its forecast for US renewables growth by nearly 50 per cent because of Trump removing tax incentives and blocking new wind projects, but increased its forecast for India by nearly 10 per cent, citing increases in the capacity of onshore wind and solar generation.
For decades the US was a net oil importer in a global economy based on fossil fuels, and was therefore intent on enforcing stability of supply from the Middle East. Jimmy Carter’s 1980 doctrine of maintaining a US-friendly Gulf was followed by the first Iraq war a decade later. By contrast, Trump’s promise this week to insure and escort oil tankers in the Gulf is merely a stopgap. The exploitation of domestic shale, which had turned the US into a net exporter by 2019, plus huge improvements in renewable energy technology, ought to have given it insulation from oil price shocks and respite from constant security vigilance in the Gulf region.
Instead, Trump has turned America’s back on the green tech revolution while threatening the global oil market with attacks first on Venezuela and now Iran. In the latter case in particular, the administration itself can’t seem to understand what it’s trying to achieve.
Iran, more than almost any other nation, also illustrates the US’s ability to inflict economic damage in other ways. Successive US administrations have used their control of banking and the global dollar payments system to isolate and weaken Iran’s economy.
The EU has revealed the power of this particular form of coercion by trying in vain to bypass restrictions Washington has placed on trade. Resenting a sanctions policy set from afar by the US, the EU passed a “blocking regulation” aimed at preventing EU companies from complying with extraterritorial US restrictions, and then set up a barter system to bypass sanctions. It failed.
Few governments will weep for Iran’s regime, but they see how the US weaponises the dollar system to punish countries it dislikes. So far, talk of alternatives to the US dollar as an international currency for payments and bank funding is merely aspirational. But the more that the dollar is used as a tool of coercion, the more other nations will seek alternatives.
Almost every action the Trump administration takes in the area of geoeconomics screams “diversify and insulate” at its trading partners. With splendid timing, Canada’s Prime Minister Mark Carney, whose Davos speech in January envisaged a world without the US as a reliable leader, started a tour this week aimed at building a “middle power alliance”.
Carney’s first stop was India, where you can be pretty sure that Iran and the energy trade were on the agenda. He and Modi launched an energy security strategy, including a plan to share nuclear technology and jointly to host a renewable energy summit.
Trump seems intent on trashing more than half a century of US leadership of the world economy. The bombing of Iran is just another step on his destructive journey. Other governments are entirely sensible to detach themselves before they become collateral damage.