If oil prices obeyed presidents, the oil industry would have long ago stopped swinging between booms and busts.

We’re two weeks removed from a presidential election result that was a shock to most supporters of both major candidates. The winner had staked out energy policy positions diametrically opposed to those of the current administration.

So it’s only natural to re-evaluate energy investment prospects based on Donald Trump’s campaign promises, even though they haven’t yet been tested by Congressional nitpicking or the vagaries of markets and the global economy.

This is a good time for a reminder that, in our system as currently constituted at least, the president proposes and Congress disposes. Some of the actions Trump has pledged to take unilaterally in support of fossil fuels, notably approval of the Keystone XL pipeline and the expansion of drilling on federal land, would be mostly symbolic in their effect on total energy output. Others will need to get through a lengthy rule-making process and survive subsequent court challenges.

A related point is that at this stage we’re naturally too focused on the stated goals of policy and not enough about its unintended effects. For instance, expectations that the Republican majority in Congress will back tax cuts and higher deficit spending have sent bond yields spiking, and high-yield bonds like those issued by most drillers got hit especially hard. If rising inflation and interest rates increase drillers’ borrowing costs, that might more than negate all the measures intended to deliver increased output.

Still, this will be an unusual presidency. For Trump the national interest is inseparable from the needs of the industries he favors. He’s made deregulation his top economic priority.  And while the Democratic minority in the Senate is large enough to frustrate much of his agenda, it will be vulnerable to political pressure with 25 Democratic seats up for re-election in two years.

Going from generalities to specifics, let’s review the likely effect of a President Trump on the energy industry sector by sector.

Green Regs and Hamm

Oil drilling is a key ingredient in Trump’s prescription for revitalizing America. His confidant Harold Hamm, the fracking pioneer and Continental Resources (NYSE: CLR) CEO, has been mentioned as a possible pick for energy secretary.

But while the president can make more federal land and waters available for drilling, he can do relatively little about the economic disincentives of low oil prices. Despite the recent uptick in the rig count, at $45 a barrel there is simply not enough profit available to keep that up for drillers who are already carrying hefty debt loads in many cases.

Some have argued that oil and fuel demand could rise in the long run if Trump succeeds in abolishing or watering down the fuel efficiency mandates on auto manufacturers. But he will be at least somewhat constrained by current law and federal rule-making requirements. More importantly, the current penalties under the program are so modest as to be effectively irrelevant. So changing the rules likely would not increase sales of the already extremely popular large trucks by much. Demand for these gas guzzlers will continue to depend on fuel prices, which will also determine at the margin whether we end up consuming more or less fuel in the future.

Patriot Games

Trump does have one avenue for severely crimping global crude supply, to the benefit of U.S. shale drillers and the detriment of energy consumers.

As president, he will have almost complete discretion to scuttle the multinational nuclear accord with Iran, something he has repeatedly pledged to do. Doing so, especially if backed up once again by the threat of banking sanctions on foreigners who don’t go along, would stymie Iran’s efforts to secure international investment for its oil and gas industry. It could also reverse growth in Iran’s oil exports, which are up by a million barrels per day since the nuclear deal was struck a year ago.

Whether or not the Iran nuclear deal was advantageous for the U.S., it was an unmitigated disaster for the Saudi royals. Their archenemy Iran had wiggled off the sanctions hook, and gained oil revenue to pursue regional proxy wars in the process.

Source: Bloomberg

If the goal is to lift oil prices in the near term, as I believe Trump wants, the surest way to do that is to use a breach of the Iran deal as a carrot with the Saudis. The price would be a hefty cut to the kingdom’s exports to make way for additional shale production in the U.S., whether other OPEC members agreed or not. An unexpectedly large production cut announced at the next OPEC meeting on Nov. 30 largely at the Saudis’ expense might be a sign of just such an arrangement.

But even if OPEC doesn’t curb output, the breaking of the nuclear accord would pit Trump against Iranian hardliners ahead of that country’s presidential election next May. Both sides would stand to gain politically from a confrontation. An obvious flashpoint would be Persian Gulf waters off the coast of Yemen. Iran’s allies in the Yemeni war recently fired missiles at U.S. warships, and faced Tomahawk missile attacks on their radar sites in retaliation.

Come next spring, the U.S. could be in a tense standoff with Iran in the Gulf, with Iranian oil exports fading and Iranian responses increasingly provocative. If Saudi Arabia curbs its output as well we could be looking at significantly higher oil prices.

Even a relatively short-lived spike would let U.S. producers hedge more future output, encouraging more drilling. Hamm would love it and so would Vladimir Putin, the Russian president whose backing Trump has long enjoyed, and whose ailing economy also requires higher oil prices.

There’s certainly no guarantee that things will play out this way, but it does seem like the most plausible scenario. It’s also just about the only one in which President Trump could significantly move oil prices. A commander-in-chief willing to enter into armed conflict with Iran does have that power.

A Pardon for Coal 

It won’t take a war for the new administration to lend a hand to the domestic coal producers. Instead, the Environmental Protection Agency under its stewardship will begin the extended process of rewriting and perhaps abolishing the EPA’s current Clean Power Plan (CPP), which seeks dramatic long-term cuts in carbon dioxide emissions by power plants. While the formal rule changing could take as long as two years, no one can doubt where that process will lead. In the meantime, the Trump administration can also stop defending the current CPP from the ongoing court challenge by industry groups.

Source: U.S. Energy Information Administration

Under the current CPP, coal-generated power output is expected to decline 28% between 2015 and 2030, according to the U.S. Energy Information Administration. Without the CPP, the EIA expects coal power generation to increase 5% over that span, though coal would still lose 3 percentage points of market share to natural gas and renewable energy sources.

Of course, before the CPP goes away its abolition would likely have to survive a court challenge by environmentalists and some states on the basis of the Clean Air Act, under which the current plan was drafted. And Trump’s policy would remain subject to change by his successor. In all likelihood, the rapid shrinkage of the U.S. coal power plant capacity will merely be slowed rather than halted or reversed.

Filling In the Blanks

Trump isn’t one to discriminate among fossil fuels, so he’s in favor of natural gas too. But despite his pledge to “allow vital energy infrastructure projects, like the Keystone Pipeline, to move forward” shale drilling for natural gas in the Northeast will likely continue to be slowed by a shortage of takeaway capacity, mostly as a result of state government opposition to pipelines like the Constitution in New York.

There is little Trump can do to override a state’s permitting process. And any further gains for coal would almost certainly come at the expense of natural gas, since the two are primary competitors in electricity production. Tensions with Mexico shouldn’t interfere with mutually advantageous and rapidly growing exports of U.S. natural gas to that country. But all bets would be off in a real trade war, or if exports of natural gas became embroiled in a dispute over a border wall or deportations.

Trump backed current rules requiring that ethanol make up at least 10% of the motor fuel consumed during a visit to an Iowa ethanol plant in late 2015. The Renewable Fuel Standard, first proposed by George W. Bush, remains popular across the politically crucial Midwest and in Congress, which has delegated the annual quota setting to the EPA. It’s possible the agency will not be as aggressive in its mandates for annual ethanol blending in the future. At a minimum, the system for tracking the quotas could be overhauled, as the Renewable Identification Numbers (RINs) certifying compliance have been bid up by speculators in the recent past. Carl Icahn, the financier, refinery owner and a prominent Trump backer, has complained loudly about how the much the RINs have cost his company and the refining industry.

Trump’s stance on renewable energy has been ambiguous. He doesn’t object to it so long as wind and solar energy aren’t favored at the expense of fossil fuels, and his stance on current tax incentives for renewable projects is unclear. The fear is that these incentives might fall victim to broad corporate tax reform, or alternatively that reduced taxes on top earners and corporations might make renewable projects less attractive as a shelter. But at least current incentives are unlikely to become direct  targets.

Before acting on any such political speculation an investor needs to decide what’s already been priced in. Trump’s most emphatic positions aren’t a secret, and the market hasn’t been slow to respond to election results.

What Everybody Knows

The biggest gains among the equities we recommend have accrued to Energy Transfer Equity (NYSE: ETE), which has soared 27% since Election Day. The Dakota Access pipeline built by its affiliates has been held up by protests at its Missouri river crossing, and the federal government continues to delay granting an easement required to complete the project. That stance is certain to change as soon as Trump takes office if it’s not overturned earlier in court. Energy Transfer Equity remains our top pick, but for reasons that don’t have much to do with presidential politics. For more on ETE, see last week’s portfolio update as well as another one in this issue.

The two coal equities in our Aggressive portfolio are up 12 and 16% in two weeks. The Alerian MLP index is up 5% over the same span, though it’s hard to know how much of that’s been Trump and how much the firmer energy prices seen over the past week or so.

Curiously enough, many of the leading shale oil stocks have also lagged the rallies in banks, metals and cyclicals, held back by the still low crude prices and doubts that OPEC will really curb output even if it promises to do so.

I expect firmer oil prices in the week left until the next OPEC meeting and possibly beyond, especially if I’m right about Saudi Arabia’s willingness to put up with short-term revenue loss to make the long run as painful as possible for its archrival. And if Trump tears up the nuclear deal with Iran he’ll end up on a collision course with Iranian hardliners, with both sides potentially benefiting from Gulf hostilities.

One way or another, someone in the Mideast is about to get squeezed, whether it’s Iran or a Saudi Arabia hemmed in by Trump’s budding friendship with Vladimir Putin, a key Iran ally. Putin wants higher oil prices too, along with an end to U.S. sanctions. It remains to be seen how Trump handles the typically tangled Mideast mess, but the guess here is on less diplomacy and more gunboats.