Drill, Baby, Drill: The Impact of Trump’s New Energy Policy on OPEC Nations

Since his reelection, President Donald Trump has announced an aggressive energy policy centered on expanding U.S. oil production. His policy, referred to as "Drill, Baby, Drill," includes increasing domestic oil drilling, declaring an energy emergency, and withdrawing from the Paris Agreement. Trump's goal is to bring oil prices down to $45 per barrel, a significant drop from the current $70 per barrel. Trump argues that inflation caused by tariffs under his administration will be negated with the lowered fuel costs. However, this plan raises significant environmental concerns and is expected to have major economic consequences worldwide—especially for oil-dependent nations like Saudi Arabia.

Saudi Arabia, a leader in the Organization of the Petroleum Exporting Countries (OPEC), has made large investments outside of the oil industry, including massive tourism projects like NEOM, the LIV Golf league, and the recruitment of international soccer stars. These investments are meant to diversify the country's economy, reducing its dependence on oil revenues. However, they require significant funding: according to the International Monetary Fund (IMF), Saudi Arabia needs oil prices to be at least $90 per barrel to support its current level of spending.

In 2024, Saudi Arabia’s oil industry shrank by 4.5%, and the government faced an expected budget deficit of $27 billion. Since 2023, Saudi Arabia and other OPEC nations have cut oil production in an effort to raise prices. However, prices have not increased as expected, leaving Saudi Arabia in a difficult position—selling less oil and earning lower revenues.

In response to market conditions, OPEC+ plans to maintain oil production cuts until 2026. However, this may not be enough to increase prices. The biggest challenge for OPEC is that the U.S. oil production continues to rise. Even under President Joe Biden, who campaigned on greener energy policies, the U.S. oil production has soared. In fact, Biden authorized the release of over 300 million barrels from the Strategic Petroleum Reserve and oversaw a production increase to 13.2 million barrels per day—47% higher than Saudi Arabia's output.

With Trump returning to the White House, this trend will likely accelerate. The United States, along with other non-OPEC nations such as Canada and Guyana, will continue increasing production, further driving down global oil prices. This could weaken OPEC’s influence and put even more financial strain on countries like Saudi Arabia.

Trump has also pushed Saudi Arabia to invest $1 trillion in the U.S. economy. While the exact details of this demand remain unclear, it is likely tied to energy, infrastructure, and trade agreements. This is a stark contrast to July 2022, when Biden himself visited Jeddah to request an increase in oil production. Given Saudi Arabia’s financial struggles, such an investment may not be feasible, especially if oil prices continue to drop under U.S. production growth.