Report: Oil and gas projects will be delayed by 2026 due to rising tariffs.

A Deloitte report released on Wednesday showed that the U.S. President Donald Trump’s sweeping tariffs will raise operating costs in 2026. They will also disrupt supply chains, and reduce investment momentum.

Why it's important

Energy industry operations are heavily dependent on international supply chains. Materials such as drilling equipment, valves, compressors, and specialized steel, which can be sourced internationally, are essential to their operation.

The report stated that U.S. tariffs imposed on these components, as well as other input materials such steel, aluminum, and copper, may increase the cost of material and services across the value chain from 4% to 40%. This could result in a compression of industry margins.

CONTEXT

The United States has imposed tariffs for a variety of imports. These include 10% to 25% on crude materials that are not covered by United States-Mexico Canada Agreement, and 50% on copper, steel and aluminum.

Deloitte's report said that the tariffs may change the cost structure of oil and gas companies and increase uncertainty about feedstock sources.

KEY POINTS

Tariffs and inflation could delay final investment decisions and greenfield offshore projects valued at more than $50 billion until 2026.

The report stated that operators could struggle to recover the higher costs and this may eventually lead to a decrease in investment activity.

Deloitte predicts that oil and gas companies, as input costs rise and cascade down the value chain through pricing adjustments to reduce volatility and share risk, will renegotiate their contracts to include force majeure and escalation clauses.

What's Next?

Deloitte stated that the ongoing disruptions may drive companies to prioritize their supply chains over low-cost sourcing, and to shift to domestic or non tariffed suppliers. They could also use foreign trade zones and tariff reclassification in order to manage duties.

This shift is significant, given that the United States relies heavily on imports. Nearly 40% of tubular goods for oil-producing countries will be imported by 2024. (Reporting and editing by Maju Samuel in Bengaluru, with Vallari Srivastava from Bengaluru)

(source: Reuters)