Market minute: Drill, baby, drill and the 25% tariffs on steel and aluminum

REAL ECONOMY BLOG | March 14, 2025

For the most part, the current multifront trade war has been more sound than fury.

But on Wednesday, one of those tariffs—the 25% levy on steel and aluminum products—took effect, spurring retaliation from Canada and Europe.

One can see the shape of the cost increases to come in the spot price of 5.5-inch diameter North American steel pipe, which has soared more than 20% over the past month.

Those pipes are used by drillers to extract oil from the ground.

Given falling oil prices—West Texas Intermediate hovered around $67 a barrel on Thursday—and the rising cost of materials, the breakeven price of oil for producers is increasing.

And when drillers face a higher breakeven price, the incentive to engage in speculative exploration declines.

Those price increases, induced by trade taxes, will adversely impact production curves in a manner that is not oil business friendly.

The 25% increase in steel and aluminum tariffs that have been implemented are not exactly aligned with drill baby drill.

This article was written by Joseph Brusuelas and originally appeared on 2025-03-14. Reprinted with permission from RSM US LLP.
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