How National Oil Companies Can Navigate Trade Tensions

The global oil and gas industry is currently navigating a turbulent landscape, significantly impacted by new tariffs and escalating trade tensions between the United States and China. Oil prices have fallen and are hovering around $60 per barrel. While tariffs have acted as a key catalyst for this decline, the situation is further amplified by a combination of demand-side and supply-side pressures.

On the supply side, OPEC+ countries have accelerated plans to roll back output cuts, increasing production by 411,000 barrels per day starting in May. Non-OPEC+ supply has also been growing, adding to global supply concerns.

While the oil and gas commodity market has reacted to this short-term instability, these developments also carry potential long-term consequences. Local crude inventories are rising, particularly in the US, reaching peak levels not seen since mid-2023. Major analysts have revised their outlook, downgrading crude projections to $60-$62 per barrel.

These and other indicators suggest uncertainty will continue.

Emerging scenarios for navigating tariffs and turbulence

As trade policies evolve, national oil companies (NOCs) must prepare for various potential scenarios over the next six to twelve months. Each scenario presents unique challenges and opportunities, shaped by tariff levels and the speed of resolution:

Let’s Make a Deal: A rapid resolution of tariffs leads to eased trade frictions and stabilizes oil prices around $65-$70 per barrel.
Strategic Decoupling: High tariffs create a fragmented global economy, with regional trading blocs emerging and oil prices diverging based on local market conditions.
Extended Friction: Negotiations drag on, with pauses in tariffs providing relief, but uncertainty remains, complicating business planning.
Full-Blown Trade War: Escalating tariffs lead to economic downturn, oversupply of oil, and increased competition for market share, resulting in extreme volatility.

How seven strategic shifts can strengthen NOCs' performance

Given the uncertainty surrounding these scenarios, NOCs must adopt robust strategies to mitigate risks and position themselves for long-term value creation. Below are strategic recommendations tailored to each scenario:

Let’s Make a Deal: Focus on implementing multi-year cost reduction programs to stabilize finances as oil prices recover.
Strategic Decoupling: Enhance cost visibility and maintain strict financial discipline to weather higher tariffs.
Extended Friction: Develop a tiered approach to capital projects, prioritizing investments with shorter discovery-to-first-oil cycles.
Full-Blown Trade War: Create substantial financial buffers to withstand extended periods of margin pressure.

Let’s Make a Deal: Build relationships with suppliers to ensure stability in the supply chain as trade flows normalize.
Strategic Decoupling: Identify alternative sourcing strategies from regional suppliers to mitigate risks associated with high tariffs.
Extended Friction: Implement flexible pricing mechanisms in contracts to adapt to fluctuating tariff levels.
Full-Blown Trade War: Prioritize local sourcing and develop strategic inventories to buffer against supply chain disruptions.

Let’s Make a Deal: Invest in systems that allow for rapid adjustments to production levels as market conditions improve.
Strategic Decoupling: Train the workforce to enhance flexibility and maintain critical functions during disruptions.
Extended Friction: Establish contingency plans for operations to manage ongoing uncertainty effectively.
Full-Blown Trade War: Focus on remote operations capabilities to reduce reliance on physical presence and improve monitoring.

Let’s Make a Deal: Maintain a balanced portfolio of low-risk, cash-generating assets while exploring growth opportunities.
Strategic Decoupling: Optimize portfolios by diversifying across geographies to reduce dependency on any single market.
Extended Friction: Emphasize optionality in investments, prioritizing low-risk projects with short payback periods.
Full-Blown Trade War: Evaluate asset footprints to ensure competitive presence in key markets and consider strategic exits from high-risk areas.

Let’s Make a Deal: Monitor acquisition opportunities that align with strategic objectives as market conditions stabilize.
Strategic Decoupling: Explore partnerships and joint ventures to share risk while capturing strategic benefits.
Extended Friction: Focus on smaller, tactical acquisitions that address specific needs rather than large, transformational deals.
Full-Blown Trade War: Prepare for potential distressed buyout opportunities as companies seek to divest non-core assets.

Let’s Make a Deal: Continue investing in low-carbon initiatives that deliver clear economic returns alongside environmental benefits.
Strategic Decoupling: Build stakeholder support for a pragmatic approach to energy transition, balancing security, access, and sustainability.
Extended Friction: Prioritize commercially viable low-carbon projects while postponing more capital-intensive ventures with uncertain returns.
Full-Blown Trade War: Focus on low-carbon initiatives that minimize exposure to imported technologies and materials.

Let’s Make a Deal: Secure long-term contracts to support new development while maintaining spot market flexibility.
Strategic Decoupling: Diversify sourcing in major price hubs to capture geographical price spreads as markets fragment.
Extended Friction: Introduce flexible, shorter-term contracting models to adapt to ongoing uncertainty.
Full-Blown Trade War: Leverage low-cost production positioning to maintain market share and assess distressed LNG contracts for future optionality.

Let’s Make a Deal: Focus on implementing multi-year cost reduction programs to stabilize finances as oil prices recover.
Strategic Decoupling: Enhance cost visibility and maintain strict financial discipline to weather higher tariffs.
Extended Friction: Develop a tiered approach to capital projects, prioritizing investments with shorter discovery-to-first-oil cycles.
Full-Blown Trade War: Create substantial financial buffers to withstand extended periods of margin pressure.

Let’s Make a Deal: Build relationships with suppliers to ensure stability in the supply chain as trade flows normalize.
Strategic Decoupling: Identify alternative sourcing strategies from regional suppliers to mitigate risks associated with high tariffs.
Extended Friction: Implement flexible pricing mechanisms in contracts to adapt to fluctuating tariff levels.
Full-Blown Trade War: Prioritize local sourcing and develop strategic inventories to buffer against supply chain disruptions.

Let’s Make a Deal: Invest in systems that allow for rapid adjustments to production levels as market conditions improve.
Strategic Decoupling: Train the workforce to enhance flexibility and maintain critical functions during disruptions.
Extended Friction: Establish contingency plans for operations to manage ongoing uncertainty effectively.
Full-Blown Trade War: Focus on remote operations capabilities to reduce reliance on physical presence and improve monitoring.

Let’s Make a Deal: Maintain a balanced portfolio of low-risk, cash-generating assets while exploring growth opportunities.
Strategic Decoupling: Optimize portfolios by diversifying across geographies to reduce dependency on any single market.
Extended Friction: Emphasize optionality in investments, prioritizing low-risk projects with short payback periods.
Full-Blown Trade War: Evaluate asset footprints to ensure competitive presence in key markets and consider strategic exits from high-risk areas.

Let’s Make a Deal: Monitor acquisition opportunities that align with strategic objectives as market conditions stabilize.
Strategic Decoupling: Explore partnerships and joint ventures to share risk while capturing strategic benefits.
Extended Friction: Focus on smaller, tactical acquisitions that address specific needs rather than large, transformational deals.
Full-Blown Trade War: Prepare for potential distressed buyout opportunities as companies seek to divest non-core assets.

Let’s Make a Deal: Continue investing in low-carbon initiatives that deliver clear economic returns alongside environmental benefits.
Strategic Decoupling: Build stakeholder support for a pragmatic approach to energy transition, balancing security, access, and sustainability.
Extended Friction: Prioritize commercially viable low-carbon projects while postponing more capital-intensive ventures with uncertain returns.
Full-Blown Trade War: Focus on low-carbon initiatives that minimize exposure to imported technologies and materials.

Let’s Make a Deal: Secure long-term contracts to support new development while maintaining spot market flexibility.
Strategic Decoupling: Diversify sourcing in major price hubs to capture geographical price spreads as markets fragment.
Extended Friction: Introduce flexible, shorter-term contracting models to adapt to ongoing uncertainty.
Full-Blown Trade War: Leverage low-cost production positioning to maintain market share and assess distressed LNG contracts for future optionality.

Next steps for NOCs in an unstable global market

The global oil and gas industry is at a critical juncture, facing significant challenges from escalating trade tensions. By understanding the potential scenarios and developing strategic responses, NOCs can enhance their resilience and position themselves for long-term value creation. The outlined strategies provide a foundation for navigating current turbulence while building capabilities for an increasingly complex global environment.