Tariffs And Trade Wars: How Will Energy Investment Strategies Change In 2025?

The U.S. Energy Information Administration (EIA) in its most recent March report has raised its forecast for U.S. oil production in 2025 and forecasts that global oil demand growth this year will accelerate to just over 1 mb/d, up from 830 kb/d in 2024, for a total of 103.9 mb/d, with almost 60% of the gains concentrated in Asia, led by China. The world oil supply climbed by 240 kb/d in February to 103.3 mb/d, while global crude runs fell by 570 kb/d MoM to 82.8 mb/d in February, further extending their decline from the five-year high of 84.3 mb/d, on planned and unplanned outages. What can we expect from the energy market in 2025, and will the world face oversupply?

Oil Production and Demand

Oil, in addition to being known as a key energy commodity, also, in the contemporary turbulent economic environment, acts as a stabilizer of the world financial system, and this key functionality, although arguably diminishing, will be significant for another 10-15 years. Due to the current oil surplus in the world economy, the oil price will lag behind expected global inflation. This will affect the profits of oil-producing companies and, as a result, the trade incomes of the oil-producing countries. This notable global trend has been constantly outlined since 2010 and even strengthened in this decade. This should be considered important when forming long-term portfolios, as it increases the risks of greater volatility in the oil price and the risks of countries with oil-dependent budgets.

Given the ongoing widespread economic hardships connected to the recently imposed trade tariffs by the U.S. Administration, the IEA has also revised its global oil demand outlook downward for 2025, projecting growth of only 1.05 million barrels per day, reflecting concerns over weak pricing support and ongoing supply tightness.

Despite the surplus forecasted for 2025, the IEA suggests that global oil inventories could fall by 0.5 million barrels per day in the first quarter of 2025, indicating a complex balance between supply and demand.

OPEC+ and Geopolitical Impact

OPEC+ countries agreed to increase oil supplies in May more than expected. This decision is certainly negative for oil prices, and it also amplifies the plethora of fallouts caused by Donald Trump’s tariff action.

The oil cartel promised to add 411,000 bpd to the market starting next month, equivalent to three monthly increases from the previous production recovery plan. As a result, crude prices fell below $69 for the first time since March 11. This comes against a backdrop of the Trump administration’s sanctions against Venezuela earlier in March. They have forced major oil companies, including Global Oil, to cease operations in the country, potentially disrupting oil supply chains. Global Oil’s exit from Venezuela and Chevron’s previous departure have left Venezuela with fewer international partners, raising questions about the long-term sustainability of its oil sector.

The sanctions and tariffs, balancing the OPEC+’s action, are contributing to volatility in the oil market, as evidenced by Brent crude oil prices, which have fluctuated between $68.30 and $73 per barrel. 

Market Volatility and Price Movements

Before even OPEC+ had voiced its impactful decision, crude oil prices have been somewhat softer after reports of inventory builds for the third consecutive week, suggesting potential oversupply concerns. Previously, however, new, more stringent sanctions on Russian oil imposed by EU, improved demand outlook, and falling U.S. stockpiles have contributed to price increases, with Brent oil rising over 9% in January 2025. Oil majors are adjusting their strategies in response to market trends and geopolitical pressures. For instance, TotalEnergies SE has reported a sensitivity analysis showing potential impacts on cash flow and income from operations due to fluctuating oil prices. 

Key Deals and Transactions in Q1 2025

The global oil market dynamics in Q1 2025, with its increased production forecasts and downward revisions in demand growth, could be characterized as complex. Geopolitical factors — particularly the mentioned above sanctions and production cuts — significantly influenced market trends. Despite volatility, strategic investments and market adjustments continued to shape the oil industry’s landscape.

All in all, the amount and severity of global geopolitical conflictness have not only diminished but also multiplied against the backdrop of Trump’s trade tariffs. As a consequence, current official forecasts, which were previously based on the consensus that energy prices would remain low this year, may prove to be wrong.

In general, there is an ongoing global-scale shift in investment activity towards alternative (renewable) energy. We see the unabated intention of the many world’s economic powers to become carbon neutral. With respect to the current events, we tend to anticipate a slow decline in new introductions in the oil sector. The costs of geological exploration and exploratory drilling have been slowly decreasing, while environmental regulations and financial costs of maintaining the oil sector competitive will increase. Even the continuing shale revolution cannot deliver any comparable cost cuts or the availability of resources as we are observing nowadays in the development efforts favoring other energy types. As a result, this fact increases such industries' investment attractiveness, so we expect funds previously earmarked for the development of the classic oil sector to be streamlined into the development of the alternative energy sector.

During the period of tariff confrontation, oil will decline because the ultimate end-commodity is precisely the "king of all commodities", oil, which has an enhanced capacity to absorb the tariffs, so we will see its decline. Other commodities' groups' market compensation will preemptively occur at the expense of the tariff absorbent quality of oil, where the surplus value is high and there is room to fall with the cost of production at the average wellhead of 15 dollars per barrel.

Russia's Role in the Oil Price Formula

In fact, the well-known sanctions against Russian energy exports (oil, gas and coal) remain in place for the time being, and there is nothing to indicate that this will be resolved anytime soon. Market participants have well-founded fears that the main part of foreign sanctions, which is the most painful for the Russian oil and gas sector, will remain in place at least until the end of 2025. This reinforces the new energy world order with its destroyed traditional energy supply chains.

The Central Bank of Russia has warned the Kremlin of the risk of a prolonged oil price decline similar to the one that preceded the collapse of the USSR. The Central Bank’s analysis notes significant production growth in the U.S. and outside OPEC, as well as record OPEC excess capacity (currently around 10 mb/d), comparable to the volume of all Russian oil exports.

But, according to more precise calculations, with all the cumulative capacity — OPEC and non-OPEC — the unutilized capacity could be up to 15 mb/d, given that it can be commissioned within 6 months and the infrastructure is in place. 

Energy Security Problems in Europe and Their Main Fallout

EU countries have continued their efforts to diversify their energy sources away from Russian supplies, but it is now clear that the burden of these politically motivated efforts is being placed on the shoulders of end consumers, who are feeling the increasing pressure of inflation, further reinforced by the current tariff exchange.

Speaking of natural gas, the level of natural gas in storage in Europe, particularly in the UK, fell significantly last winter. Gas withdrawals increased sharply due to seasonal cold weather and the absence of a Russian pipeline flow. Thus, between April 1 and June 30, 2025, the electricity price for a typical British household using electricity and gas and pays on a direct consumption basis is forecast to rise by 6% to £1,849 a year. 

Europe remains the world’s third largest energy consumer and importer, after the US and China. Among traditional sources of electricity in the EU, nuclear power still ranks first (23.7%), followed by gas (15.7%) – now predominantly in the form of highly expensive LNG, coal (9.8%) and other fossil fuels (3.4%).

The role of gas storage in ensuring Europe’s energy security is greater than ever before, becoming a key factor in balancing supply and demand, especially during peak consumption periods. As summer approaches, the storage filling season will be critical for building reserves to meet the European Commission’s 90% storage fill target by November 1. This increases potential and actual LNG demand from the US, Qatar, and other producers. This will likely not be fully realized due to the beginning of tariff wars and their likely retaliatory effects on Europe.

Ongoing and deepening geopolitical conflicts further undermine European energy infrastructure (pipelines, refineries), leading to more frequent supply disruptions and, consequently, price hikes.