Trump’s tariffs threaten America’s status as energy superpower

Free trade fueled the U.S.’s rise as an oil-and-gas hegemon. President Trump’s America First era is set to force a painful readjustment.

Globalization has been a boon to U.S. oil-and-gas companies, which have been able to export their abundant surplus of fossil fuels. This in turn has blown the lid off domestic production, allowing America to lap Saudi Arabia and Russia as the world’s top producer of oil and gas—and narrow its trade deficit.

Now, Trump’s levy offensive could put these gains at risk by hurting demand for U.S. products. It could also create an opening for America’s energy rivals to regain market share.

Although the president’s duty increases exempt energy flows, fears of a global recession have damped crude prices. Despite the 90-day pause that Trump declared on some tariffs Wednesday, U.S. oil prices are still trading at levels that will likely cause domestic production to flatline—if not decline—this year. Since Trump’s tariff-unveiling last week, they have fallen about 17% to below $60 a barrel, a price that shale drillers say would eventually hinder their investment plans.

The trade war has also ensnared U.S. sales of liquefied natural gas as American firms are erecting new export facilities. China’s retaliatory tariffs against the U.S. hit all of its products, including LNG. Although some countries such as Japan and South Korea might increase their purchases of natural gas to placate Trump, a global downturn could imperil export projects.

Many industries, from car manufacturers to tech firms, have been shocked by Trump’s market-rattling attempt to reorient the world’s trade order. The U.S.’s retreat from world commerce will be especially brutal for oil and gas firms, which have long drilled in international fields, refined foreign crude, and shipped petroleum and natural gas across the world.

“The oil industry is by nature a global industry," said Dan Yergin, vice chairman of S&P Global and co-author of “The Commanding Heights," a book about the rise of free markets. “They’re going to have to find a new playbook."

During Trump’s campaign, his oil-and-gas donors pressed him to enmesh their industry further in international commerce. Some of his first executive orders, which aimed to make it easier for companies to build new pipelines and export more fossil fuels, seemed to fulfill his campaign promise to make oil and gas a pillar of U.S. prosperity and global dominance.

An LNG tanker docked in Louisiana. The trade war has also ensnared U.S. sales of liquefied natural gas.

But the president’s tariffs appear to undermine this “energy dominance" plan to unleash American fossil fuels on the world stage.

“There’s a head scratcher," said Robert Yawger, director of the futures division at investment bank Mizuho Americas. “You claim that the energy industry is the darling of your economic plan, and you just made life very difficult."

International sales have been a growth engine for U.S. oil and gas, turning the sector into an American export powerhouse. Energy was responsible for 15% of U.S. exports last year, according to Barclays analysts. The European Union alone imported roughly $79 billion of energy products from America.

When Congress a decade ago lifted a ban on oil exports, it provided shale companies with a crucial outlet for their booming production. The gusher of crude has blunted the pricing power of the Organization of the Petroleum Exporting Countries and bolstered the U.S.’s influence over its member nations.

American refineries still import millions of barrels of oil every day, but overseas sales of petroleum last year allowed the U.S. to log a roughly $45 billion surplus, according to the Census Bureau—the highest on record.

In tandem with surging crude production, the U.S. has been cranking out a torrent of natural gas. Drillers stumped by low domestic prices have sought out international buyers, and the U.S. has surpassed Australia and Qatar as the world’s largest LNG exporter.

Trump’s trade blocks could change that. Counter-tariffs of the kind China slapped against the U.S. could make American LNG less attractive to buyers. Only 6% of China’s LNG supply came from the U.S. in 2024, but U.S. companies in recent years signed supply contracts with Chinese buyers that amount to six times these volumes, according to the Center on Global Energy Policy at Columbia University.

Additionally, Trump’s tariffs, by weakening oil demand and depressing prices, could put a halt to already slowing crude growth in the U.S. Producers have exhausted most of their high-quality drilling locations, which has pressured them to merge. Some analysts say OPEC and its allies’ recent decision to boost output signals that the group believes its American rivals are finally slowing.

A prolonged period of lower oil prices could take a toll on drillers in the Permian, the biggest oil field in the U.S. It could increase smaller producers’ debt leverage, pressure them to sell themselves—and shift an expected decline in production in some U.S. oil fields from 2026 to this year, said Tom Loughrey, president of energy analytics firm FLOW Partners.

“This could really be a punch to the face of the U.S. producer," Loughrey said. “$60 oil does not work."

Consulting firm Rystad Energy estimates that above $62 a barrel—including dividend payments to shareholders and debt-service expenses—is the price many U.S. oil players need to break even.

Andy Hendricks, chief executive of oil-field services company Patterson-UTI, said that if prices fell further into the $50-a-barrel range, “you have the potential to bring U.S. production down," which would give a freer hand to the U.S.’s crude competitors. American oil prices falling to $50 a barrel could reduce U.S. crude output by roughly 8% in a year, according to S&P Global Commodity Insights.

Some wildcatters are undeterred. Mike Oestmann, a West Texas oilman who sold his company in 2023, is looking to partner with other investors to buy acreage and start a new drilling project in the coming months. Oestmann said the Permian still has good wells and truck traffic in the oil patch is still going strong.

“That’s a good sign," he said. “It can change quickly. I realize that."

Write to Benoît Morenne at benoit.morenne@wsj.com and Collin Eaton at collin.eaton@wsj.com