2 days Ago
Even though energy commodities – oil, natural gas and refined products – were largely spared collateral fallout from US President Donald Trump’s new ‘Liberation Day’, the new tariffs have pushed oil and gas prices down. The IMF has already warned that Trump’s aggressive tariffs pose a “significant risk” to the global economy at a time of sluggish growth, recommending that “the US and its trading partners work constructively to resolve trade tensions and reduce uncertainty,” by avoiding steps that could further harm the world economy. Even though it is difficult to assess fully the long-term impact of the new tariffs on the global economy, without any doubt there will be immediate and severe consequences.
The US is no longer seen as a safe haven or a safe and reliable trading partner. And if this turmoil persists, those countries that can are likely to treat the US as a trading partner of last resort. Reliance on the US may also be reduced by making long-needed investments, spurring growth domestically – particularly in Europe.
Impact on oil prices The impact on oil prices was immediate and dramatic. Just before the announcement of the new tariffs, Brent crude was trading above $75/barrel. Soon after, it tumbled down to $65/barrel.
The main concern is that tariffs will impact global economic growth adversely – particularly in Asia that represents the major market for future oil consumption growth – reducing oil demand, that is now expected to be revised downwards. Another factor that has coincided with the tariffs hike was the decision by Opec+ to increase production by 410,000 barrels/day, substantially higher than the 135,000 barrels/day originally planned. Ironically, Opec+ made the decision to continue increasing oil production “in view of the continuing healthy market fundamentals and the positive market outlook”.
That, of course, was before the tariff shocker. Given their dire impact on the oil price, Opec+ may yet be forced to reconsider this decision. But a prolonged period of low oil prices could destabilise the oil-producing economies of Opec+ countries and could eventually force them to leverage their market power.
Impact on natural gas Natural gas prices have also tumbled downwards. At the Dutch gas-trading hub, TTF, gas prices fell from €42.8/MWh on April 1 to about €36.
5/MWh now. With a glut of LNG about to hit markets, US LNG projects were already struggling to sign buyers under long-term contracts. The new tariff risk and concerns by buyers, particularly in Asia, of continuing exposure to the US is having a dampening effect.
The often floated idea that countries could qualify for tariff relief by entering into US LNG contracts now appears to have been a forlorn hope. Countries that are major buyers of US energy have not been spared Trump’s sweeping tariffs. However, in the trade and tariff negotiations that will surely follow once the dust settles, buying US LNG may still return as a trade-off option.
Impact on energy transition With tariffs impacting costs, including cost of materials, there will inevitably be fallout on energy transition, with harmful effects on low-carbon energy sectors like wind, solar and electric vehicles (EVs). Their supply chains depend heavily on global trade. Rare earth minerals essential to the production of electronics, EVs and in the defence industry are expected to be caught up in the developing trade war.
China controls about 70 per cent of their production and 90 per cent of processing. This will impact the development of battery storage and renewable energy facilities in the US, sectors that depend heavily on imported materials. In addition, the uncertain environment and likely higher interest rates may push investments away from renewables and clean energy into dealing with the immediate problems created by tariffs.
As a climate economist put it “it just seems like where we are headed is totally uncharted.” It is too early to predict what the consequences of this scale of global trading transformation could be on energy transition. However, in some respects the unintended consequences of Trump’s new tariffs could benefit energy transition.
They may drive China to diversify clean energy exports to low and middle-income countries, thus accelerating transition beyond Europe and the US. Chinese-made EVs are also likely to gain a stronger advantage. In fact, according to IEA’s ‘World Energy Outlook 2025’, emerging and developing economies are projected to account for 70 per cent of solar PV, 60 per cent of wind, and 60 per cent of battery storage market share by 2030.
This will now be accelerated. Reliance on US energy It is inevitable that responding to the new situation where possible, most countries would seek to reduce their reliance on the US, including energy imports and build trade relations with other countries. However, the EU is in a particularly difficult position, with US LNG comprising 45 per cent of its LNG imports in 2024, and without serious alternative supply source options.
The same applies to EU’s imports of US crude and oil products that in 2024 were 15-20 per cent of its total imports. Hence the growing interest in some European circles to return to Russian energy imports, once the Ukraine problem is out of the way. Inevitably, that interest will increase as the impact of the new tariffs on EU member state economies sinks in.
How will the world react It is too early to say how the world will react. Tariffs are likely to change as countries try to negotiate lower rates or take retaliatory measures. Indeed, President Trump implied as much, when he said he is open to “phenomenal offers” from countries rushing to reduce tariffs.
He said: “the tariffs give us great power to negotiate,” indicating that, depending on offers, he is prepared to “relent”. This, though, is likely to lead to more price volatility in the near term. Another purpose behind Trump’s new tariffs is his determination to drive “investment in domestic manufacturing after decades of outsourcing US industries and jobs”.
The problem, though, is that tariffs may not be dependable long enough to encourage investment. As a result, many energy analysts warn that they threaten to raise US prices. Europe, China and Canada have already confirmed they will respond with their own counter measures.
Depending on the level of their reactions, the risk of global stagflation – higher inflation and lower growth – and even recession, is now much higher, putting even more downward pressure on oil and gas prices. China has actually reciprocated with 34 per cent retaliatory tariffs on all US imports, including oil and LNG. Whatever happens, for energy consumers the worldwide reduced oil and gas prices provide a breather, at least in the near term, from the currently very high levels.
Cypriot consumers should soon see the benefit in terms of substantially lower petrol and electricity prices which could end up as much as 10 per cent lower..
