By Justin Alexander

For the third election in a row, polling agencies significantly underestimated Donald Trump’s support. The reasons for his win will be debated for years, ranging from Joe Biden’s late exit to anger at the US’s role in Gaza and Lebanon which led some usually reliable Democrat-supporting Arab-American communities, such as Dearborn in Michigan, to flip to Trump. However, the primary reason was an anti-incumbency response to the inflation since 2021.

The Trump Administration that will take office on January 20, 2025 will have significant implications for many countries, including Oman. Details will become clearer as he forms his cabinet and as the final votes are counted to determine control of the House of Representatives.

One of his top priorities is tariffs. This was also the case in his first term when he imposed tariffs on steel and aluminum from most countries, including Oman. This time he has outlined a range of proposals including a universal tariff of 10%-20%, which would apply to Oman despite its free-trade agreement with the US, as well as punitive tariffs on certain products and countries, particularly China. The fear is that these could ignite a wave of protectionism internationally, although Oman and the GCC could still advance trade deals with other partners, such as India.

The broader concern about tariffs is that they will be inflationary in the US, which is ironic given that anger about inflation was a major source of Trump’s support. They could potentially double inflation, which had fallen to just 2.1% in October. Other policies such as deporting undocumented immigrants and cutting taxes could also be inflationary. The US Federal Reserve would likely keep interest rates higher for longer to control this new pulse of inflation.

This would directly impact Oman because the rial-dollar peg means that it needs to closely follow US interest rates or potentially suffer destabilising capital flows (indeed, last week the Central Bank of Oman mirrored the Fed’s 25 basis point rate cut). This would keep borrowing costs high and potentially dampen corporate investment and consumer spending in Oman. Trump’s tax cuts might also increase the US government’s borrowing costs, which would also raise the cost of new debt issued in Oman, because the market prices it relative to US Treasuries.

Then there is the oil market. The current OPEC+ plan would see Oman gradually increase its production next year, eventually adding 42,000 barrels per day, a 5.5% increase that would bring in over RO1mn a day in extra revenue. However, even before the election, there was uncertainty about the outlook for oil demand, which is why OPEC+ has twice delayed increases which were originally due to begin last month.

Trump could impact the oil market in several ways. Firstly, he could support a further increase in US production, already at a record level, but this would take several years to have an impact. He is also a climate skeptic and opposes subsidies on EVs and green energy and fuel efficiency standards. Changing policy in these areas could increase US oil consumption and sap up some or all of the additional domestic production, although this could prove politically difficult and would take time. Trump’s most immediate impact on the oil market could by on production abroad. If he really can end the war in Ukraine quickly, as he has claimed, then this could see additional Russian oil coming onto the market. Conversely, he could try to tighten sanctions on Iran and reduce its exports, although the Biden Administration has been trying to do this in recent months with little impact.

Given the wide range of ways that Trump’s policies might impact oil supply and demand, there will be a lot for Oman and its OPEC+ partners to weigh as they decide upon production levels. However, despite this uncertainty, Oman is in a strong position fiscally after several years of reforms. The IMF estimates that its budget will be in surplus next year if oil is higher than $57, compared with $91 for Saudi Arabia.

Economics aside, the biggest concern for the region will be whether Trump follows through on his promise to end the war in Gaza or, conversely, exacerbates the conflict and ramps up tensions with Iran. Whatever the scenario, Oman will have an important role to play as a neutral party that is well-regarded by all the countries involved.

Justin Alexander is the GCC Economist and Director of Khalij Economics, providing analysis on the GCC to emerging market investors and governments. His free Gulf Weekly newsletter is available on LinkedIn.

[The views and opinions expressed in this column are solely those of the author and do not necessarily represent those of Muscat Daily or Apex Press & Publishing]