US midterms deliver a Democratic Congress: What this means for energy markets

Executive summary

The 2026 US midterm elections have delivered a significant political setback to President Donald Trump, but their implications for US policy and global energy markets are far from straightforward. Democratic control of Congress will constrain the administration's domestic legislative agenda and yet leave considerable presidential discretion over foreign policy. The outcome closely matches Scenario C of our 5 October outlook: legislative gridlock at home, greater congressional influence over spending and appointments, and potentially increased reliance on executive powers to define the administration’s policies abroad. Rather than reversing the direction of US policy, the elections may change how it is pursued.

The US remains deeply involved in the Middle East conflict, energy prices remain elevated, and Washington increasingly uses sanctions, trade restrictions and energy resources as instruments of negotiation. A Democratic Congress could raise the political cost of further escalation against Iran, complicate potential concessions to Russia and increase scrutiny of trade policy. Yet, congressional constraints could also encourage greater reliance on executive action, potentially increasing rather than reducing geopolitical uncertainty. For energy markets, the most consequential effects may therefore emerge abroad, while domestic oil and gas production continues to respond primarily to market fundamentals.

Hence, there are important limits to what the election can change. The White House retains considerable authority over the instruments that impact global energy markets most directly: sanctions implementation, diplomacy and certain trade measures. Congress retains authority over trade legislation, appropriations and war powers, while the Supreme Court has already established legal limits on the use of emergency economic powers to levy tariffs. The election result would therefore put more political and institutional constraints on the administration's actions, rather than fundamentally altering the powers available to it.

Domestically, US oil and gas production will remain driven by market fundamentals, investment economics and infrastructure constraints. Critical-mineral supply chains, nuclear energy and geothermal retain scope for bipartisan cooperation. Data-center electricity demand adds a further dimension, with states, utilities and regulators holding substantial influence over investment and the allocation of infrastructure costs.

Timing now matters. The outgoing Congress retains its authority until the new one convenes on 3 January, and fiscal decisions taken in that window could constrain its successor. Subsequent budget and debt-limit negotiations will provide the first indication of how the new political balance translates into policy. The midterms will not resolve the strains from conflicts in the Middle East and Eastern Europe, or from transatlantic and US-Canada trade tensions. Still, they will change the political environment in which Washington responds to them. The central question for 2027 is whether these new constraints encourage accommodation, produce prolonged paralysis or drive the administration toward a more assertive use of executive power, with potentially significant consequences for global energy markets.

The results

Democrats won control of both the House and the Senate. In the Senate, the party flipped seven seats, in Iowa, Kansas, Ohio, Maine, North Carolina, South Carolina, and Texas, well beyond the net gain of four it needed, and now holds 54 seats to the Republicans' 44, with Alaska and Mississippi still uncalled. In the House, it is estimated Democrats will hold between 251 and 268 seats once all votes are counted, although dozens of races, 68 by the Associated Press's count on 4 November, had not yet been called.

Five of the seven flips came in states the Cook Political Report had rated toss-ups before the vote (Iowa, Kansas, Maine, Ohio, and Texas). The other two, in North Carolina and South Carolina, fell outside that list. As of 6 November, two Senate races, in Alaska and Mississippi, remained uncalled. Neither can change control of the chamber.

Gridlock at home, an executive workaround abroad

Our outlook described a Democratic sweep producing legislative gridlock with some horse-trading on domestic energy policy. Each side's agenda stalls, but must-pass bills could force trades. In foreign policy, the scenario points to an executive workaround. Congress will seek to codify pressure on China and Russia and to add institutional brakes, while the White House could lean more on executive power to pursue its priorities abroad.

The president keeps his veto. Overriding one requires 67 senators and 290 House members, and the projected House majority – while larger than the narrow margin our analysis assumed – remains well short of that threshold. History points in the same direction. Over the last five presidencies, 81 of 84 vetoes came after the president's party lost a chamber. Congresses seated after such a flip enacted an average of 391 public laws, compared with 514 for all others.

The main new lever is control of money and people. Both chambers now control funding, and the Senate controls confirmations. On Iran, both chambers can pass war-powers resolutions, but the veto still holds, so the practical leverage lies in holding back war funding and confirmations. Our analysis concluded that Democratic gains make post-election escalation costlier and a deal likelier. On Russia, a Democratic Senate adds votes on Ukraine aid and the power to delay envoys and sanctions officials, which makes concessions pressed on Kyiv harder to sell. On China, a Democratic Congress could try to write chip export licenses, rare-earth rules and outbound-investment rules into statute through the defense bill and Senate holds on trade nominees.

Venezuela's current output is safe under this scenario. Congress cannot revoke executive oil licenses, but both chambers can deny authority and funding for the Pentagon's 35% stake in the North American Blue Energy Partners concessions. In that case, the expansion proceeds on private capital, more slowly and without a federal backstop. On tariffs, review bills would get a Senate vote but likely not the 60 needed for it to pass. The tariff authority in the Sanctioning Russia and Iran Act remains with the White House.

Domestic energy: Direction holds, scrutiny rises

Our outlook concluded that US oil and gas production stays driven by market fundamentals, investment economics and infrastructure constraints, whichever party controls Congress. That conclusion still holds.

Approvals for building liquefied natural gas (LNG) terminals for the 2026-31 period stand. New approvals beyond 2031 could face more hearings and scrutiny, and slower confirmations at the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) could add friction. On federal leasing, output follows price and capital discipline, and acreage is not a constraint. Democrats can now attach appropriations riders to Interior's budget and influence confirmations of the officials who run lease sales. The sales themselves are statutory, however, and permits on existing leases continue.

For renewables, a Democratic Congress protects the surviving credits from further repeal and gains bargaining power over budget and debt-limit votes. Longer battery-storage credits are the most plausible gain. Restoring wind and solar credits remains out of reach. Nuclear, geothermal and critical minerals keep cross-party support and funding. Coal remains as backup capacity where grid operators require it, while storage and transmission support become tradable.

Financing levers and the lame-duck window

The outgoing Congress keeps its authority until the new one convenes on 3 January. It faces an 11 December funding deadline and the 31 December expiry of the Export-Import Bank charter. A lapse remains very unlikely. If the outgoing Congress chooses a short renewal, though, the decision moves to the new Congress, where Democrats can add ethics rules and terms on default-rate exemptions. For the Development Finance Corporation, our analysis expects friction rather than reversal, with conditions on the budget and the new $3 billion equity fund as the primary levers.

Governor races shape data-center policy

Our outlook highlighted that 29 of the 36 governor races determine who appoints the chair of the state public utility commission. These commissions set data-center tariffs, allocate grid costs between large users and households, and approve new plants and power lines. Democrats flipped five governorships in Georgia, Iowa, Nevada, Ohio and Texas and held Arizona, Maine, Michigan and Wisconsin.

Our outlook noted that both candidates for Ohio governor had promised a pause on data centers until cost rules are in place, and that state utility regulators in Michigan and Wisconsin will set the 2027-28 siting and pricing policy. With Democrats now holding the Senate, a single federal cost-sharing rule for data centers becomes more likely, but siting stays with the states.

What to watch next

The first test of how the new configuration translates into policy will come in the lame-duck fiscal decisions before 3 January, followed by budget and debt-limit negotiations in 2027. For global energy markets, the central question remains the one our outlook posed: how the result changes the implementation and predictability of US policy on sanctions enforcement, trade, energy investment and the handling of ongoing conflicts.