Tariffs to raise costs, delay oil and gas projects in 2026, report says

A Deloitte report projects that U.S. tariffs will significantly increase operating costs and disrupt supply chains for the oil and gas industry by 2026, potentially raising material and service costs by 4% to 40% and compressing margins. This cost inflation and financial uncertainty could defer over $50 billion in final investment decisions and offshore greenfield projects, dampening overall sector investment. Consequently, companies are expected to renegotiate contracts, prioritize supply chain resilience, and shift sourcing to domestic or non-tariffed suppliers to mitigate exposure to these duties.

Analysis

A Deloitte report indicates that U.S. tariffs are poised to significantly increase operating costs and disrupt supply chains for the oil and gas industry by 2026. The tariffs, including 10-25% on crude feedstocks and 50% on steel, aluminum, and copper, could elevate material and service costs across the value chain by 4% to 40%, directly compressing industry margins. This strongly negative outlook underscores a fundamental shift in the sector's cost structure.

The resulting inflation and financial uncertainty are projected to defer over $50 billion in final investment decisions (FIDs) and offshore greenfield projects to 2026 or beyond. This delay in capital expenditure is expected to dampen overall investment activity within the sector, as operators struggle to recover higher input costs. The U.S. reliance on foreign sources, supplying nearly 40% of oil country tubular goods demand in 2024, highlights the vulnerability to these trade policies.

In response to these challenges, oil and gas companies are anticipated to renegotiate contracts, incorporating escalation and force majeure clauses to share risks and limit volatility exposure. The industry is also expected to prioritize supply chain resilience over lowest-cost sourcing, shifting towards domestic or non-tariffed suppliers. Companies may also leverage foreign trade zones or tariff reclassification as strategic measures to manage duties.

Key Decisions for Investors

• Investors should anticipate significant margin compression and reduced investment activity in the oil and gas sector through 2026 due to tariff-induced cost increases.
• Evaluate company-specific exposure to imported materials and their strategies for supply chain resilience, including shifts to domestic sourcing or tariff mitigation tactics.
• Monitor for contract renegotiations, particularly those incorporating escalation and force majeure clauses, as indicators of risk management by operators.
• Consider the potential for delayed final investment decisions on major projects, which could impact long-term growth prospects for affected companies.