The International Maritime Organization's low-sulfur fuel mandate could impact the 2020 US presidential election if prices for other fuels such as home heating oil spike, IHS Markit vice chairman Daniel Yergin said at the TPM 2019 Conference. Photo credit: Shutterstock.com.

The International Maritime Organization’s (IMO’s) low-sulfur fuel mandate for ocean vessels “is going to happen, but I have one caveat,” Daniel Yergin, IHS Markit vice chairman, said Monday at the TPM 2019 Conference in Long Beach, California. That caveat is, “in two words: Donald Trump,” he said.

The price of fuels such as diesel, gasoline, jet fuel, and home heating oil will likely rise as refineries devote more capacity to low-sulfur bunker fuel, said the founder of energy consulting firm Cambridge Energy Research Associates, now part of IHS Markit. “As we see a spike in distillate prices, this will affect people who use heating oil to heat their homes in the winter and the autumn in really crucial states like Pennsylvania,” said Yergin. By “crucial,” he means key to the reelection of President Donald Trump in November 2020.

In 2016, Trump won the state of Pennsylvania with just 48.2 percent of the vote, but a large swath of those voters came from rural counties. In Somerset, where residents voted three-to-one for the president, protest signs attacking Democratic candidate Hillary Clinton’s alleged “war on coal” were a common sight.

According to Yergin, Trump will want to ensure voters in Pennsylvania and other northern tier states crucial to his Electoral College victory don’t see heating oil and diesel prices leap skyward before the 2020 election, potentially chilling his prospects for a second term.

“The administration hasn’t focused on this until very recently,” Yergin said, but he expects that to change. “I think it’s going to be a very hotly contested election and states like Pennsylvania will be crucial ... I don’t see how it cannot have at least political turbulence around it.”

'Transformative event'

It’s not clear what the White House can do with regard to the IMO regulation, which the US subscribes to through an international treaty. But action from Trump on social media can’t be ruled out, Yergin warned; even a single tweet from the president can have an impact on international policy.

“I’ve seen first hand the immediate impact of his tweets on wanting low oil prices has had around the world,” he said. “The IMO is a treaty that’s in place and can’t be overturned, but we’ve seen the US withdraw from other things,” such as the Paris Climate Accord.

An attempt by the United States and others to delay the Jan. 1, 2020 implementation of the mandate was rejected by the IMO last autumn, and the US has said it is not trying to delay the deadline. The IMO did agree to boost efforts to lessen the mandate’s impact on the market.

“If the US — or any other country — were to seek to overturn the new 0.5 percent sulfur limit, it would need to find a majority of the signatories to Marpol Annex VI, the IMO’s convention on pollution from ships, who were willing to amend it,” S&P Global Platts said in October.

The international requirement will reduce permissible sulfur content in vessel fuel from 3.5 percent to 0.5 percent beginning on Jan. 1, 2020. The vast majority of ships are expected to meet the requirement by replacing traditional bunker fuel with low-sulfur fuel. Various industry estimates put the additional annual cost range of meeting the rule between $13 billion and $15.7 billion.

The low-sulfur mandate, and it’s looming impact on ocean shipping rates and capacity, is one of the primary concerns among shipping and carrier executives at TPM 2019. “It’s a big change and it will not go smoothly,” Yergin said in his keynote address to the event’s 2,500 attendees.

“This is a transformative event,” he said, warning of a coming “IMO scramble.” “It creates risks, opportunities, winners, and losers. It will have a major effect on other markets, including airlines, truckers, and farmers. We don’t think industries are prepared.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.