Oil industry executive J. Nelson Wood was close to starting a multimillion-dollar drilling project in Illinois. Then came President Donald Trump’s tariffs.
Now, the cost of the pipes he will need for the project has doubled following Trump’s tariff on steel imports, while the price for his oil has fallen around 17% this year amid fears that the levies will slow economic growth — and with it demand for oil. Between the higher costs and lower prices, it doesn’t make financial sense for him to drill for more oil, he said.
“It’s very hard for people to have the confidence to invest when markets are in a state of flux and panic, and that’s where we are now,” Wood said. “There’s a lot of uncertainty, and that uncertainty prevents development of a lot of projects — from people my size all the way up through the majors.”
He’s not alone. Oil producers across the country say they are thinking twice about taking on new drilling projects and looking to cut costs after Trump’s trade war rhetoric has driven down the price of oil and his tariffs have driven up the cost of drilling. Just as importantly, wider concerns about a slowdown triggered by tariffs in the economy are also in play, affecting companies’ investment decisions.
“President Trump’s tariff policies are really negatively impacting his goal of ‘drill, baby, drill,’” said Andy Lipow, president of Lipow Oil Associates, who has worked in oil refining and trading. “From the producer standpoint, they’re now seeing substantially lower crude oil and natural gas prices, which is impacting their revenues. And on the other hand, their cost of drilling materials are going up.”
While Trump announced a pause on some higher tariffs this week, he kept additional 10% tariffs on a number of countries in place, and a higher tariff on steel also remains. Imports of oil are exempt from tariffs, including oil from Canada, so long as the producers there can provide documentation that the oil was produced in North America. But the broader issues confronting the oil industry show how the tariffs can impact even industries not directly affected by them.
“Drill, baby, drill” was a constant refrain from Trump on the 2024 campaign trail, as he pledged to ramp up U.S. oil production. Pumping more oil has also been a cornerstone of Treasury Secretary Scott Bessent’s so-called 3-3-3 plan to grow the economy, which calls for increasing oil production by 3 million barrels a day to reduce inflation by lowering gas prices.
Critically, the recent drop in oil prices will eventually translate into lower gas prices, which could give relief to consumers.
Lipow expects gas prices to fall around 15 cents a gallon in the coming weeks and by as much as 50 cents if the United States enters a recession.
But those savings at the pump could be offset by rising costs elsewhere for consumers, if what’s driving the lower gas prices is the effect of higher tariffs on the rest of the economy. Other companies could increase prices as a result of having to pay higher tariffs in order to import their products into the U.S.
“I do expect that gasoline prices will start dropping, which is good news for the consumer, but that just means it costs less to go to the store to pay more for your food and other goods,” Lipow said.
With oil prices down and companies pulling back from new drilling projects, there will ultimately be less supply — driving gas prices back up. It could also mean fewer jobs and economic growth in the rural communities dependent on the energy sector.
In Montana, Patrick Montalban said times are tight for his small oil business, which his father started in the 1950s. If prices remain low, he said, he won’t be taking on any new projects and may eventually have to cut wages for his employees, who make around $35 to $40 an hour.
Even before the tariffs, he said, he had already seen his operating costs increase around 30% since the start of the pandemic. At the same time, the price he gets for his oil from the Montana refineries he sells to has dropped to around $49 a barrel this week, compared to $75 a barrel a year ago.
“If you are a small business, and you take $25 off of what you produce, clearly, it’s going to affect your business,” Montalban said. “I have this feeling that they think everyone in the oil and gas business is rich, they’re flying around in private airplanes, and that couldn’t be further from the truth in our industry.”
Early action to spur more drilling meets economic headwinds
During Trump’s first days in office, the oil industry appeared to be positioned to benefit quickly under his presidency. Trump signed a number of executive orders aimed at rolling back regulations on the industry, opening up more federal land for drilling, and hampering the development of alternative energy sources, such as wind and solar power.
But the benefits from those regulatory changes haven’t offset the impact of falling oil prices for many drillers, said Mike Cantrell, whose family has been in the oil business in Oklahoma since the 1920s. Most of the regulations on the oil industry from the Biden administration hadn’t taken effect yet, especially for smaller oil companies, and many drilling projects are on private, not federal, lands. The U.S. pumped a record amount of oil during President Joe Biden’s time in office despite his push to move the country away from fossil fuels.
“The Biden regulatory regime, we didn’t like it, but it really hadn’t gone into effect on small producers, so it just didn’t matter, but what does matter is the price dropping,” Cantrell said.
Despite Trump’s friendly attitude toward the industry, Cantrell said, he isn’t surprised to see falling oil prices under Trump, which happened during his first term.
“The president says ‘drill, baby, drill’. And he also says we’re going to have cheap oil. You can’t have both,” Cantrell said. “I spoke to an oil and gas association in October out in Amarillo, Texas, and I said, ‘Guys, you all want to hate Joe Biden and all of us are going to vote for Donald Trump, including me, because that’s where we are philosophically. But you’re not going to like oil prices under Donald Trump.'”
Shortly after Trump was elected, Ken Hunter, who operates more than 700 wells in the California and Utah region, said he started buying the steel-based tubing and casings he needs for a drilling project he’s planning this summer in anticipation of coming tariffs.
“Once he got elected, there was definitely a drumbeat threatening tariffs,” Hunter said. “So I said, ‘Well, we have to buy it anyway, so let’s see if we can find some now and not worry about it.’”
Even with the materials in hand, he may decide to delay the project if oil prices keep falling.
“If prices continue to drop further, I think it would affect our plans to drill this summer,” Hunter said. “Right now, the price is still probably good enough, but it is definitely to a point where any further down draft that lasts for a month or so, we probably would be pulling back on any capital expenses.”
In Illinois, Wood’s delayed project would have been the largest he’d undertaken, with five new wells costing more than $1 million each.
His business, which operates around 200 older wells in the Illinois Basin and has an interest in more than 100 shale wells in North Dakota and Montana, was still recovering from the pandemic oil market crash, when demand for oil and prices tumbled as people stayed home and airline travel ground to a halt.
“We’re in a cyclical business as far as pricing, but you never get used to this kind of uncertainty. This is, for me, an aberration,” Wood said. “A good portion of us have 401(k)s and all you have to do is look at that, and if that doesn’t cause uncertainty, I don’t know what will. There’s a lot of angst out there, and justifiably.”
