US tariffs – unpredictability is the strategic planners’ nightmare

No strategic planner in the energy sector will forget where they were on 2 April 2025. As soon as President Donald Trump announced his ‘Liberation Day’ trade tariffs, months of work developing investment plans for the next five years went out the window. But companies can’t stand still for long – they need to adapt and form a new planning framework. Two months into the 90-day pause in the implementation of the “reciprocal” tariffs and with the sands still shifting almost daily, that’s a tough ask.

In our latest Horizons insight, Wood Mackenzie has created three scenarios based on possible tariff outcomes. These assess the impact on the global economy and on key interconnected sectors in energy and natural resources – oil, LNG, power and renewables, and metals.

What is the impact of tariffs on the global economy?

Depending on the outcome, the impact ranges from extremely bad to broadly neutral. ‘Trade war’, our downside case, assumes tariffs are implemented in full, averaging 30% and triggering a global recession. Global GDP is 2.9% lower in 2030. ‘Trade tensions,’ the middle road, sees average tariffs increased from 2.3% in 2024 to 10% for 2026-2030, reducing global GDP by 1.1% in 2030. ‘Trade truce’, the upside scenario, is really the status quo with trade barriers back to the levels at the start of 2025 and global GDP growing at an average rate of 2.7% a year through 2030.

Which commodity markets are the most tariff-sensitive?

The tariff impact can’t be viewed entirely in isolation – they will exacerbate the existing challenges confronting each market. Oil is acutely vulnerable because weaker global demand from lower GDP growth coincides with the acceleration of previously withheld OPEC+ crude coming back onto the market. In the trade truce scenario, largely unaffected demand growth helps to absorb higher supply, supporting Brent in the low US$70/bbl range. Lower demand in the trade war scenario, in contrast, ushers in a supply glut, with Brent plunging to US50/bbl in 2026 before recovering to above US$60/bbl by 2030.

This year, the LNG market will be deceptively tight almost whatever the outcome. Global supply is currently limited and demand firm as Europe rebuilds storage after a cold winter, and despite weak Asian LNG demand. However, things change rapidly thereafter as huge volumes of supply from new projects currently under development come onto the market from 2026. Even in trade truce, global LNG prices fall from US$11.2/mmbtu in 2024 to US$7.2/mmbtu by 2030. Meanwhile, rising Henry Hub prices squeeze US suppliers’ margins, and there’s a risk some cargoes won’t be lifted at times. In a trade war, the oversupply is much worse, with weaker demand in key Asian markets and Europe, leading to more LNG cargoes unlifted for a lengthier period.

The impact of tariffs on power markets is more subtle and complex. Tariffs will soften the robust demand growth we expect in US power demand through 2030 from data centre build-out and the manufacturing renaissance. The main damage to the power market is uncertainty, slowing down much-needed investment in new power generation and infrastructure. Battery storage is hardest hit in trade war as China dominates the supply chain; renewables in the US are more affected than conventional generation technologies for the same reason.

Which scenario is most likely?

We think trade tension is most likely, but it’s extremely difficult to call. The process itself has ebbed and flowed. Last week’s initial judgement by the US Court of International Trade that President Trump had exceeded his authority by unilaterally imposing tariffs (and the subsequent appeal) has added to the confusion. Trade tension, a middle path, seems a pragmatic solution for the White House after the allergic response by financial markets after 2 April. The severe, if brief, wobble in US bonds prompted the 90-day pause on reciprocal tariffs on 9 April, since when only the UK has formalised a trade deal with the US.

However, the prospect of a trade war scenario is far from dead and buried. Emboldened by a more stable bond market and the S&P 500 recovering all of the post-Liberation Day losses, President Trump has in recent days pushed back robustly on suggestions he would soften his stance. Raising tariffs on steel and aluminium from 25% to 50% indicates he still believes he can use high tariffs to transform the country’s trade relationships with the rest of the world.

What comes next?

An unrelenting news flow for at least a month before the reciprocal tariff pause is due to end on 9 July. This week’s moment has been the 4 June deadline for US trading partners to submit their ‘best offers’ on trade and tariffs.

The ongoing tariff saga is just the latest example of why companies need to ensure their strategic plans and capital allocation can swiftly adapt to unpredictable events.

Thanks to: Peter Martin, Head of Economics, Ann-Louise Hittle, Vice President, Oil Markets Massimo Di Odoardo, Vice President, Gas and LNG Research Robin Griffin, Vice President, Metals and Mining Research Ryan Sweezey, Director, North America Power and Renewables, Ed Crooks Vice Chair Americas

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