The early days of Donald Trump’s second term suggest that much of his domestic and foreign policy agenda will hinge on achieving and maintaining lower oil prices.

At home, lower energy prices—particularly at the pump—are central to Trump’s strategy for reducing consumer inflation and stimulating economic growth. The President has set an ambitious goal of reducing retail gasoline prices to below $2 per gallon, a significant drop from the current national average, according to the U.S. Energy Information Administration (EIA).

In his remarks, Trump linked lower crude prices directly to monetary policy, declaring at the World Economic Forum in Davos on January 23rd that reduced oil prices would justify immediate interest rate cuts, both domestically and globally.

Abroad, the administration sees low oil prices and expanded liquefied natural gas exports as a tool to pressure Russian President Vladimir Putin to end the war in Ukraine. Trump’s team believes that squeezing Russia’s energy revenues—critical to its economy—could weaken its ability to finance the war.

Former congressman and newly appointed National Security Adviser Mike Waltz echoed this view in a series of late 2024 interviews, emphasizing the importance of flooding global markets with U.S. oil and gas while ramping up sanctions on Russia. Waltz argued that driving oil prices below $50 per barrel could severely constrain Russia’s economy, describing the country as “a gas station with nukes.”

Trump is also revisiting tactics from his first term by pressuring the OPEC+ cartel to increase production and lower prices. In Davos, he announced plans to ask Saudi Arabia and OPEC to lower oil costs. OPEC+ has already signaled intentions to unwind some production cuts this year, potentially adding barrels to the market and exerting downward pressure on prices.

However, the cartel faces a delicate balance. Many OPEC nations, including Saudi Arabia, rely on oil prices above $80 per barrel to meet their fiscal needs. Saudi Arabia’s fiscal breakeven oil price for 2025 is $84.70 per barrel, according to the International Monetary Fund. Riyadh’s willingness to push prices lower could be limited, particularly as the kingdom invests heavily in U.S. projects—pledging up to $600 billion over four years, with Trump pushing for even greater investment.

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Lower oil prices could yield mixed results for Trump. On one hand, they could help reduce inflation and stimulate consumer spending. On the other, they might deter U.S. oil producers from increasing output due to Wall Street’s demand for financial discipline and high returns. Industry insiders caution that significant investment in new supply will require oil prices to rise beyond current levels.

To encourage domestic production, Trump has declared a “national energy emergency” and begun rightsizing burdensome regulations and restrictions on federal lands imposed during the Biden administration. His administration aims to increase domestic output by 3 million barrels of oil equivalent per day by 2028, though achieving this target may require higher crude prices to justify new investments.

Trump’s policies could also create unintended volatility in oil markets. Reimposing harsh sanctions on Iran and Venezuela, for instance, could restrict supply and drive prices higher, while new tariffs or trade policies could suppress global economic activity and oil demand.

The administration’s success may hinge on finding a “sweet spot” for oil prices—low enough to reduce inflation and pressure Russia, but high enough to sustain domestic production and attract industry investment. With Brent crude prices currently under $80 per barrel and EIA forecasting a decline to $74 in 2025, Trump’s goals may face significant challenges from both market dynamics and geopolitical realities.

Ultimately, the administration’s ability to balance competing priorities at home and abroad will determine whether Trump can leverage oil prices to achieve his top policy objectives.

Robert Dillon is a policy consultant in Washington, D.C. and a fellow at the Rainey Center. He previously served as the Republican communications director of the U.S. Senate Energy and Natural Resources Committee. 

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.