Oil Industry on the Brink: Tariffs and Volatility Spark Crisis Fears

The global oil industry is teetering on the edge of a crisis, as tariff-related uncertainty and plummeting crude prices threaten to upend budgets, delay projects, and destabilize supply chains. According to Wood Mackenzie’s 2025 analysis, the sector faces a precarious balancing act: near-term financial fragility collides with long-term demand growth expectations, leaving investors and operators scrambling to navigate an increasingly volatile landscape.

At the heart of the turmoil are U.S. tariff policies and their cascading effects. Proposed levies on Chinese imports, now reaching 145%, have intensified trade tensions, while existing tariffs have already raised input costs for oilfield services by up to 15% for offshore projects. This squeeze has triggered a 15% average decline in oil and gas company share prices since early 2025, with U.S.-focused exploration and production (E&P) firms hit hardest.

Price Thresholds and Investment Risks

The WoodMac report identifies critical price thresholds that could trigger systemic shocks. If Brent crude falls to $50/barrel (bbl), as much as 1.2 million barrels per day (b/d) of U.S. tight oil production—already among the most marginal—could become uneconomical by 2026. Even at current prices near $65/bbl, companies are already delaying growth capital expenditures (capex) and discretionary spending to preserve cash.

The majors are holding firm for now, but their resilience is uneven. The CoRSI (Corporate Resilience and Sustainability Index) reveals that integrated oil giants like ExxonMobil (XOM) and Chevron (CVX) have stronger balance sheets than smaller upstream players. However, all operators face tough choices: cut share buybacks, slash capex, or risk dividend sustainability.

Tariffs as a Double-Edged Sword

U.S. tariffs are not just a political issue—they’re a financial one. The 6% to 15% cost increases for oilfield services are forcing companies like Halliburton (HAL) and Schlumberger (SLB) to prioritize profitability over market share. Meanwhile, the trade war’s broader impact has created “decision paralysis” among investors, with capital fleeing high-risk assets in the E&P sector.

The ripple effects extend to supply chains. Gulf of Mexico deepwater projects, already struggling with rising costs, now face valuation risks as tariffs limit cost deflation. And while U.S. LNG exporters may benefit from cheaper Asian and European demand, the near-term picture is bleak: WoodMac estimates tariffs could reduce 2026 global oil demand by 1 million b/d, pushing Brent prices down to $64/bbl.

Projects in Peril, M&A on the Horizon

Over 63 projects—28 in 2025 and 35 in 2026—are now at risk of delay or cancellation due to tariff uncertainty and price volatility. Even projects with strong economics (average breakeven of $42/bbl) are seeing delayed final investment decisions (FIDs). This hesitation could backfire: delayed investments may lead to a supply crunch by the late 2020s, amplifying future price swings.

Mergers and acquisitions (M&A) may fill the void. EuroMajors, facing production declines post-2030, could leverage high equity valuations to acquire assets—provided their stock ratings stabilize. Smaller E&Ps, meanwhile, may become acquisition targets as their debt loads grow.

Regional Divide Deepens

The U.S. tight oil sector remains the most vulnerable, with operators quick to slash investment if prices fall further. In contrast, national oil companies (NOCs) and integrated majors are better insulated, though no one is immune to the “tax” of geopolitical uncertainty.

Conclusion: A Race Against Time

The oil industry’s survival hinges on whether it can stabilize investment confidence before critical projects are shelved permanently. With prices hovering near $65/bbl, companies are buying time—but at $50/bbl, the crisis becomes existential.

WoodMac’s data underscores the stakes: delayed investments risk a 1.2 million b/d production collapse by 2026, while prolonged low prices could erase $7/bbl from 2026 Brent prices. Investors must weigh near-term pain against long-term potential. Those betting on resilience might focus on majors like Exxon or BP, which have diversified portfolios and stronger balance sheets. Meanwhile, the service sector’s cost discipline—Halliburton’s focus on profitability over market share, for instance—offers a cautionary but strategic path forward.

The oil industry’s crisis is not yet inevitable, but without clarity on tariffs and sustained price stability, the risks are mounting. The next year could determine whether this sector weathers the storm—or becomes its victim.