09 May Tariffs and Oil Prices, and Legal Uncertainty in the Energy Sector… by Zach P. Patton

The global oil and gas industry, already navigating a complex web of geopolitical risks, environmental scrutiny, and evolving technology, now faces a new challenge: tariffs. The recent surge in trade restrictions – particularly those affecting steel, machinery, and imported components – has introduced fresh volatility to an industry already prone to cyclical shifts.

While price fluctuations are embedded in the energy industry, the convergence of trade policy and energy economics is creating a unique moment. Crude oil prices have shown noticeable declines in recent weeks, coinciding with tariff escalations that threaten global economic growth. As legal professionals working in or alongside the energy sector, it’s critical to understand not just the economic implications, but also the regulatory, contractual, and strategic risks these developments may pose.

A Strained Global Market

If sustained, tariffs on steel and other critical imports will likely slow global economic activity, suppressing demand for energy products. The Organization of Petroleum Exporting Countries (OPEC+) has further complicated matters by increasing production, a move that could exacerbate downward pressure on prices. Lower oil prices, combined with higher operational costs due to tariffs, create a financial squeeze – particularly for U.S. shale producers, who are often more sensitive to capital expenditures.

Steel, a key component in drilling infrastructure, is a prime example. U.S. tariffs on imported steel could increase pipeline project costs significantly. For an industry built on thin margins and long-term capital commitments, that’s not a minor disruption – it’s a potential deal breaker.

Legal Implications: Contracts, Compliance, and Force Majeure

From a legal perspective, tariffs raise several red flags. Existing contracts with fixed-cost terms may not account for sudden increases in material or equipment prices, leading to potential disputes over cost overruns or delivery delays. Moreover, force majeure clauses (often invoked in the context of natural disasters or political upheaval) may come under scrutiny. Whether new tariffs qualify as a force majeure event could become a point of contention, particularly in cross-border agreements. 

Implications

Technological advances have unlocked massive reserves, improving efficiency and ensuring a more stable supply. Production in the U.S. remains near record highs, even as rig counts are well below previous levels. Looking ahead, legal strategy in the energy space will require flexibility and a strong grasp of global trends. Tariffs may be temporary political instruments, but their ripple effects – on pricing, investment confidence, and regulatory complexity – can be long-lasting.

Conclusion

Tariffs are just one of many variables influencing the energy sector, but their potential to alter business models and legal risk profiles should not be underestimated. The industry is navigating a new normal – one where trade policy, supply chain dynamics, and legal uncertainty are as impactful as oil prices themselves. In these uncertain times, proactive legal counsel is not just an asset—it’s a necessity.

By Zach P. Patton, Senior Attorney at KMD Law