What is Cost of Equity? – Meaning, Concept and Formula
February 12, 2025
Municipalities use a wide range of financial instruments in order to borrow funds from the money market. This includes the issuance of short-term debt as well as commercial paper. However, over time they have started using one more type of financial instrument. This instrument is called variable rate demand obligation and is the result of […]
In the past month, the Dow Jones Industrial Average had seen a spectacular fall. The market had crashed more than a thousand points. This crash happened on the speculation that the Federal Reserve i.e. the central bank of America is planning to raise interest rates. The mere mention of the possibility of an interest rate […]
If you are connected to any kind of financial market or watch the financial news even for 5 minutes every day, it is likely that you have heard the word, financial derivatives many times. The media is flush with articles wherein derivatives are criticized or appreciated. Most of the times, commentators are in awe of […]
In the previous article, we have established the fact that convertible debt is advantageous to some types of companies. We also know that this financial instrument can be quite complex. It is a known fact that investors who are not well versed in investing in bonds have a hard time understanding the functioning of convertible […]
In the previous article, we have already seen what fantasy sports leagues are. We also know why sports leagues across the world are trying to associate themselves with fantasy sports companies. This is despite the fact that such sports companies are also heavily criticized by one section of society and they are often said to […]
The American energy sector has really taken off in the past few years.
The discovery of “fracking” or hydraulic fracturing has completely changed the dynamics of the oil and gas industry. The end result has been a historic boom in the oil and gas industry.
For the first time in many decades, America has become self-sufficient in the production of oil. Also, countries like Saudi Arabia are no longer able to dominate America since America is no longer dependent on these nations for its oil import.
At the present moment, America produces more than 10 million barrels of oil per day. It is expected to overtake the production of Russia and become the largest producer of oil in the world.
Up until now, the Trump presidency was a godsend for the oil and gas industry. This industry has always been highly regulated because of the huge environmental impact that it has. However, of late, Donald Trump made the United States exit the Paris Accord. As a result, a lot of regulations that earlier applied to the oil and gas industry no longer apply. Fewer regulations mean less cost. It is this less cost that has made the United States more competitive in the international market.
The oil producing and exploring nations have been put in jeopardy ever since Donald Trump exited the Paris Accord. There are many critics who suggest that the steel and aluminum lobby was funded by the Gulf States to induce Trump to impose duties on foreign made steel and aluminum.
Clearly, the American steel and aluminum industry is the direct beneficiary of this action. However, the Gulf States are the real beneficiaries even though their benefits are not visible to the average person.
It is difficult to believe that Donald Trump would want to hurt the oil and gas industry knowingly. Oil and gas sector have always been on his mental map to “Make America Great Again”. Hence, he seems to have inadvertently placed a huge roadblock on the path of the oil industry.
Hence, the livelihood of millions of Americans who work in the oil and gas sector is at risk because of the tariffs on imported steel and aluminum. Donald Trump’s actions will end up creating few jobs in the steel industry.
However, they are likely to lead to massive layoffs in the oil and gas sector. These policies are just disturbing the balance of free trade. The basic principle of free trade is that countries should produce whatever they can produce most effectively. It seems like America is not very effective in the production of steel. However, the government is trying to force consumers to buy American steel. This is disturbing the cost structure of many industries.
Oil is used for transportation of all goods in general. Hence, a rise in the price of oil will lead to a rise in the price of all goods. Donald Trump’s actions may end up inadvertently causing price inflation in the economy. This is the reason why people from the oil and gas lobby are trying to convince Donald Trump to repeal his tariffs or change their nature. The very existence of American oil and gas industry can be threatened as a result of these tariffs.
America would need more time to prepare itself for a trade war. At the present moment, it is likely that American oil and gas industry may be derailed from its path. Had it been allowed to continue on its path, it would have certainly become the largest producer of oil in the world by 2021.
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