Donald Trump’s presidency has brought a historic political disruption that is reverberating beyond Washington and into global markets. His actions have introduced a new form of market risk. They are weakening institutions that support stability, cooperation and investor confidence—both at home and globally. His policies may have lasting effects in sectors such as energy that rely on predictable rules and long-term planning.
To objectively assess the market implications of Trump’s policies, let us examine the work of three Nobel Prize-winning economists: Douglass North, Oliver Williamson and Elinor Ostrom. Their institutional frameworks provide a non-partisan lens for evaluating how rules, norms and governance structures sustain market functionality by reducing uncertainty, opportunism and conflict.
Institutions—both formal (laws, treaties, regulatory systems) and informal (norms, trust, professional standards) are the foundations of well-functioning markets. As North wrote, they are the “rules of the game” that reduce uncertainty and enable complex cooperation. Without these, transaction costs rise, investment becomes more cautious and market behaviour is more erratic.
Williamson argued that institutions also existed to curb opportunism in economic and political life. He emphasised the importance of credible commitment, trust and governance structures to manage complex transactions. Ostrom’s work celebrated bottom-up, participatory governance rooted in trust, reciprocity and legitimacy. Trump's centralisation of authority, denigration of state and local institutions, and hostility toward civil society and multilateral cooperation violate many of the well accepted economic principles.
Institutional disruption in action
Trump's presidency has seen repeated attacks on four foundational pillars necessary for markets to function. The first are legal norms and governance. Trump’s challenges to electoral integrity and judicial independence created political instability. The events of 6 January 2021, when supporters stormed the US Capitol, marked a symbolic breakdown in democratic consensus. For capital-intensive industries such as oil and gas, political instability adds regulatory risk, makes permitting more politicised and reduces the reliability of long-term contracts.
The second attack to the market foundations is a retreat from multilateralism. Trump's withdrawal from the Paris Climate Accord and criticism of the UN, NATO and other key international institutions and allies signal a pullback from US leadership in global institutions. This undermines multilateral coordination—crucial for energy cooperation and climate. Investors rely on global frameworks to understand investment incentives and emissions policies. When those structures erode, uncertainty grows and capital flows hesitate.
The third attack is the use of trade policy as a weapon. Trump introduced uncertainty through rapid tariff shifts and public threats against trade partners—including China, the EU and Canada. These actions disrupt commodity flows and supply chains. An example of such disruptions is the trade in ethane and rare earths between China and the US. According to Williamson’s transaction cost theory, such unpredictability creates a hazardous business environment, increases industry costs and deters long-term investment.
The fourth attack is undermining public institutions. By attacking independent agencies, the press and scientific authorities, Trump weakens shared information systems. Energy markets in particular are highly dependent on reliable data and modelling. An example of this is the attack on the Energy Information Administration and its Annual Energy Outlook. When institutions are politicised, market actors begin to doubt energy statistics, environmental assessments and even weather forecasts tied to infrastructure resilience. Energy markets depend on credible public information, from inventory reports to environmental risk assessments. When trust in the provision of public data is lost, price discovery and project planning suffer.
The last is inconsistency of policy goals. While supporting domestic production of fossil fuels, the president also wants low gasoline prices. Pressing OPEC+, an international oil cartel to produce more, he is undermining the domestic, high-cost oil production in the US.
Risks for commodity markets
For markets, institutional degradation translates into tangible economic risks. Unpredictable policy raises the cost of capital, especially in infrastructure projects that require multi-decade visibility. Reversals on climate policy, drilling regulations or pipeline approvals send mixed messages both to investors in renewables and low-carbon technologies and fossil fuel industries. Disengagement from multilateral institutions such as the IEA or World Trade Organization complicates cross-border energy trade and hinders coordination on strategic reserves, price stability, investment incentives and emissions standards.
These effects are global. As the US retrenches from institutional leadership, other states and blocs must step in to fill the void, but without consistent coordination the geopolitical friction increases.
Trump’s supporters often cite tax cuts, deregulation, and stock market gains as economic positives during his tenure. Some of these policies are well justified. Over-regulation and red tape is a real cost to the energy industry, which is eventually translated into higher energy costs. Also, there are longer-term costs: the erosion of norms and institutions increases political risk in ways that take time to manifest fully. For energy companies, this could mean delayed investment, lower appetite for cross-border mergers and infrastructure partnerships. The increased exposure to tariff swings may cause supply chain bottlenecks.
Even traditional energy players that benefitted from relaxed environmental rules now face greater uncertainty about whether those rules will hold, be reversed or be litigated.
Institutions matter more than ever
Institutional economics emphasises that markets are not autonomous. They are socially constructed, supported and maintained by a stable legal environment, law enforcement, reputation and shared social norms. Ostrom, who won a Nobel for her work on collective resource management, showed that shared rules and mutual monitoring are essential to managing common goods such as water, air and land. This is relevant not only to the energy transition, but also to proper functioning of commodity markets in general.
As the energy sector undergoes profound shifts, from decarbonisation and digitalisation to the geopolitics of critical minerals, its success will depend not only on technology or finance, but also on institutional resilience.
Rebuilding trust
The market memory of institutional degradation does not fade quickly. Markets are powered by trust and investors—especially in long-horizon sectors such as energy—adjust behaviour based on perceived stability. Trump’s actions have strained core features of the US economic model: rule of law, predictable policy and international cooperation.
For energy markets, the risk is not ideological but structural. When market rules shift too often or too violently, capital looks for safer ground. Rebuilding confidence will require more than just sound policy. It will require restoring the institutional trust that makes large-scale investment possible.
Amid a volatile energy transition and global rebalancing, the strength of political institutions may prove the most undervalued form of economic infrastructure. Without it, even the best technologies and policies may struggle to find footing.
Heed the warnings of the Nobel laureates.
Adi Imsirovic is a director of consultancy Surrey Clean Energy and a senior associate (non-resident) at CSIS. He is the author of Trading and Price Discovery for Crude Oils: Growth and Development of International Oil Markets, published by Palgrave in 2021, and edited Brent Crude Oil: Genesis and Development of the World’s Most Important Oil Benchmark, published in June 2023. His forthcoming book, The Rivers of Money: A Social and Economic History of Modern Oil Trading, co-written with Colin Bryce, will be published in July this year by Palgrave.
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