Editorial: Policy Roulette

The closer the US gets to actually having to define its trade policies, the more scattershot its approach gets: 100% tariffs on countries that buy Russian oil, drilling for oil and gas in the Bay Area of northern California, travelling to Aberdeen to meet with UK Prime Minister Kier Starmer. All of these, and many more, were put forth during a single 3-day period in mid-July as potential aspects of the path forward.

The oil market appears to have become at least temporarily immune to the noise, barely reacting (and to the downside) to the suggestion that secondary sanctions on Russia were now part of the potential plan.

China and India have replaced the European Union over the past 2 years as the largest importers of Russian oil, and evidently the notion that the US would hit either, much less both, with tariffs that steep simply wasn’t plausible.

Against this backdrop, US rig counts fell for several straight weeks, to their lowest levels since 2021. And oil prices have fallen about 15% this year despite multiple active conflicts around the world, as Saudi Arabia and other members of OPEC+ have steadily increased production quotas. ExxonMobil, bp, Shell, and TotalEnergies all issued second-quarter earnings-related warnings as a result of the lower prices.

Some of the recent tax credit expansions and royalty cutting will help mitigate costs, but only to a point. Rystad Energy reported that more than $50 billion earmarked for 2025 investment in the global offshore sector has been deferred. Costs had already increased 20-40% between 2020 and 2024, with the firm forecasting an additional 10-20% increase through2027 even before tariffs are taken into account.

The new levies on imported goods are expected to add 8% to the cost of offshore projects and 12% to onshore costs, according to Rystad.

Much of the current focus regarding tariffs and the oil and gas industry has been on the potentially dramatic cost-increasing effects steep levies on copper and steel would have. But finished tools and equipment could also become sharply more expensive. It’s not just consumer goods that are made overseas.

The possibility exists that the next round of sanctions on Russian oil exports could increase prices. But so do the possibilities that either no such round of sanctions will occur, or if they do, that they won’t be effective.

Clear the deck The further down this byzantine rabbit hole of patchwork actions and unanticipated consequences US policy gets, the longer it will take for enough economic certainty to take hold for companies to resume large-scale investment in oil and gas infrastructure.

Key to finding our way back, however, will be effecting policy that advances the interests of US industry without at the same time slowing the global economy.

The US is big. But the combined markets of the countries it sells into are bigger. And to the degree their economies struggle, so will ours.

What will it take to get pointed in the right direction? A playing field that doesn’t change. Our current leaders know about and employ constancy of purpose. It’s a big part of how they got to where they are.

But even our most steadfast captains of industry can’t plot a course if the map is ever-changing.