Trump’s ‘economic revolution’ leaves US energy industry at tariff wars’ mercy

As the ongoing tariff wars continue to plague the stock markets, Wood Mackenzie, an energy intelligence group, has reached a conclusion that so far the U.S. power industry is among the most exposed areas to the shockwaves of U.S. President Donald Trump’s tariff hikes, which are forecast to result in slower global growth and weaker demand for many commodities, including oil.

Wood Mackenzie’s Ed Crooks, Vice Chair Americas and host of Energy Gang podcast, highlights that steep increases announced by President Trump last week on so-called ‘Liberation Day,’ which will come into effect on April 9 as part of a broad-based package of new tariffs on U.S. imports, and retaliation from other countries point to rising costs and weaker demand, as impacts are anticipated to be “complex and far-reaching.”

After stock markets around the world saw a downturn in the aftermath of these tariff announcements, driven by concerns about the consequences for growth and profit margins, Wood Mackenzie notes that the S&P 500 index dropped 10.5% between President Trump’s statement on April 2 and the market close on April 4. Aside from this, Brent crude ended the week at about $66 a barrel, down 12% in just two days.

While the European gas benchmark TTF went down 11% over the same period, the U.S. benchmark Henry Hub dropped 5%. Last week was marked by falling stocks across the board, which alarmed many into predicting an imminent market crash. The situation has not improved and remains “volatile” in Crooks’ view. Given the potential impacts on the global economy, countries have initiated talks with U.S. officials to negotiate lower tariff rates.

The prevailing energy market sentiment supports the view that a slump in demand feeds the uncertainty surrounding global energy stocks, especially those in the United States, causing many to describe the state of play in the stock market as the worst crisis since 2020, when COVID-19 wreaked havoc across the globe.

Describing the economic implications as short-term pain and long-term uncertainty, Ole Hansen, Saxo Bank’s Head of Commodity Strategy, highlighted: “Crude oil, meanwhile, was heading for its worst week in a year, with Brent crude tumbling more than 11%, in the process slumping through previous strong support in the USD 68 area.

“China’s aggressive countermove to US tariffs, announcing their own 34% duties on US goods, with Europe likely to follow soon, all but confirms we are heading towards a global trade war—a war that has no winners, and which will hurt economic growth and, with that, demand for key commodities such as crude oil and refined products.”

Analysts are concerned about the long-term impacts of these tariff excursions on the global economy, as they believe this will lock the world in trade wars and hit the global economy hard. The oil majors’ stocks dropped considerably, primarily on April 4, with the combination of the announced OPEC+ production boosts and Trump’s tariff repercussions sending benchmark crude oil prices into a tailspin amid market shifts, resulting in a kind of nosedive energy stocks have not witnessed in years.

Hansen added: “At this stage, we have not only entered a demand destruction phase, but also supply destruction from high-cost producers, which over time will help cushion the fall. The weakness was further accelerated by an OPEC+ surprise decision to accelerate planned production hikes starting in May. To understand this strategy, it’s crucial to examine the WTI forward curve, which is showing prices below USD 60 from next January and onwards. A recent Dallas Fed survey of US producers revealed that an average price of USD 65 is needed to profitably drill a new well.

“With crude oil prices under pressure, US production risks stalling sooner than anticipated, potentially allowing key OPEC+ members to regain lost market share. Partly or potentially fully offsetting this production increase are the impacts of sanctions and tariffs on countries like Venezuela, Iran, and Russia. These nations may struggle to maintain production in the coming months, providing an opportunity for GCC producers, particularly Saudi Arabia, the UAE, and Kuwait, to increase output and reclaim market share both within OPEC and globally.”

During the weekend, President Trump indicated that the economic and market turbulence could continue for some time, referring to the situation as “an economic revolution,” which he believes the U.S. will win, as his post on Truth Social points out that it “won’t be easy, but the end result will be historic.” With this in mind, Wood Mackenzie has examined the initial tariff impacts, inferring that the U.S. power industry is one of the sectors that is most exposed to such shockwaves.

While the variations in tariff impacts across companies and sectors are perceived to be overshadowed by the overall consequences for the global economy, Crooks underlined: “The tariffs could lead to significant cost increases in the power industry supply chain. Uncertainty over tariff liabilities in complex supply chains, and over possible future changes in tariff rates, can also be a deterrent to investment.”

He claims that the effects of the Trump administration’s strategy will depend on the duration of the tariffs, the scale of the exemptions, the retaliation by other countries, the responses from fiscal and monetary policy, changes in consumer and investor expectations, and many other factors. Despite this, Crooks seems convinced that the outcome is likely going to be some combination of slower growth and/or higher inflation, at least in the short term.

Global oil demand grew by 1.4 million barrels per day last year, to about 103.5 million b/d, but Wood Mackenzie analysts have already made sharp downward revisions to their forecasts for oil demand, reflecting the economic slowdown caused by the tariffs with a 900,000 b/d increase for 2025 and just 500,000 b/d for 2026, resulting in a significantly lower equilibrium price for oil and weaker refining margins over the next two years.

“The economic and political situation is evolving rapidly. If stock markets continue to slide, there will be growing pressure on the administration and Congress to change course. But as things stand, oil producers, like many other businesses, face a challenging outlook,” emphasized Crooks.

Moreover, the company is adamant that the downward pressure on oil prices also stems from the announcement made by eight members of OPEC+ about accelerating the pace of their production increases following voluntary production cuts, as this shows a raise in their combined production next month by 411,000 b/d, which will triple the monthly boost they previously planned in support of “oil market stability.”

“History offers a cautionary tale. Trump’s tariffs recall the 1930 Smoot-Hawley Tariff Act, widely considered to have deepened and prolonged the Great Depression. Today’s protectionism surpasses even those notorious levels, sparking fears of similar economic self-sabotage,” noted Jacob Falkencrone, Saxo Bank’s Global Head of Investment Strategy.

“[…] Trump’s tariffs already raised the spectre of stagflation—a dangerous cocktail of slowing growth and rising inflation. With China’s sweeping retaliation—imposing 34% tariffs on all US imports—the global economy edges closer to a tipping point. Markets have reacted sharply to China’s response, deepening recession fears. Stocks extended their sell-off, bond yields tumbled as investors sought refuge, and major banks like JPMorgan now see a 60% likelihood of a global recession this year.”

Meanwhile, Crooks has deemed Wood Mackenzie analysts’ prediction that strong non-OPEC growth in 2026 leaves little room for returning OPEC barrels, assuming that voluntary cuts will need to be reinstated in 2026, as “particularly pertinent” now in the wake of the tariff saga.

For his part, Hansen sees no major change in OPEC+ production in the coming months; instead, he anticipates a redistribution among its members. He is convinced that GCC producers are poised to be the main winners, allowing them to increase production without hurting prices.

“It has become increasingly clear that Trump’s ‘Drill, baby, drill’ cannot be achieved without hurting output from high-cost producers, many of which are located in the US, and production growth will likely slow, thereby supporting prices while handing market share back to OPEC,” concluded Hansen.

As America’s green dreams take a backseat to Trump’s oil and gas expansion agenda, some fear that Europe will fall into the same trap of abandoning its diversification strategy and relying on Russia for most of its energy imports.

With this at the forefront, MSI has mulled over the potential shift in energy policy within the EU that would entail the end of the ban on Russian fossil fuels and a revival of its energy bonds with Russia due to the ongoing trade wars and geopolitical woes.