War Takes Economic Toll, U.S. Drillers Aren't Responding

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

U.S. shale drillers are taking a wait-and-see approach to the war premium lifting crude oil.

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Upstream Plans Stable for Now

Would-be drillers in the U.S. shale patch aren't accelerating upstream plans in response to higher oil prices because the geopolitical risk premium could fade by the time actual work begins, executives said at an energy summit in Houston.

West Texas Intermediate, the U.S. benchmark for the price of crude oil, was trading at around $88 per barrel on Wednesday, down about $10 from recent highs but still 31% above end-of-February levels.

Joint U.S.-Israeli military action against Iran began February 28, leading to a closure of the Persian Gulf and Strait of Hormuz and the shut-in of barrels from the likes of Iraq and Kuwait. U.S. shale producers can typically break even with WTI prices above $60 per barrel, though they'd need a higher-for-longer scenario before reacting.

"The cycle from the time you begin to when you make a decision that you're going to add rigs to then ultimately drilling and producing and getting to market, that can be a year-long process, even in the U.S., which is a short-cycle market," Steve Gassen, a vice president for geographies at upstream services firm SLB, was quoted by Reuters as saying from the CERAWeek energy conference in Houston. "Nine months would be the very best-case scenario."

Even in the middle of last year, Olivier Le Peuch, the company's chief executive officer, said the energy market was facing headwinds ranging from a supply glut to trade tensions and geopolitical risk.

Elsewhere, oilfield services firms still face increased costs from tariffs on steel, machinery components and equipment. Steel tariffs imposed by U.S. President Donald Trump are a particular concern for the U.S. energy sector, as the nation doesn't produce the type of metal used in oil and natural gas pipelines.

Before the outbreak of war, meanwhile, the U.S. federal government estimated WTI would average $53.42 per barrel this year, falling to $49.34 by 2027 and well below the point at which shale drillers can make a profit. In futures trading, WTI loses its grip on $80 per barrel by the September contract, which was at $78.94 per barrel early Wednesday.

Francisco Gea, a managing director at Spanish energy company Repsol, said his company can't wing it because the outbreak of war has lifted crude oil process.

"Let's stick to the plan," he said from Houston.

Repsol is involved largely in offshore oil and gas drilling in the United States. Its Blacktip installation off the U.S. Gulf Coast could be in service by 2028. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas and Pipelines Project database can learn more about Blacktip--including capacities, investment values and necessary equipment--in detailed project reports.

In its estimate from March, during the early stages of the war, the U.S. Department of Energy had raised its forecast for WTI to $73.61 per barrel for this year, though that falls dramatically, to $60.81 by next year in the government's estimates.

Dallas Fed Weighs Potential Economic Toll

Meanwhile, the Federal Reserve Bank of Dallas on Wednesday released results from its first-quarter energy survey. Respondents said they expected WTI to be around $78 per barrel in the next six months, but uncertainty was the prevailing sentiment.

"In my opinion, the war in Iran will have long and far-reaching, often unexpected consequences," one respondent said. "This is similar to how sudden changes in economic policy can produce delayed and variable effects, leading to outcomes that are difficult to predict."

On the overall impact from the war, the Dallas Fed said that should restrictions in the Persian Gulf last only one fiscal quarter, real global gross domestic product could drop 0.2 percentage points, or 0.3 percentage points if it lasts two quarters.

By the Numbers

• Potential 0.2 percentage point cut to global GDP from war
• $78 per barrel WTI expected by Dallas Fed survey respondents

"The case can be made that the effects of higher oil prices on U.S. GDP growth will be of similar magnitude to the global effects," the bank stated.

Activity in the oil and gas sector increased in first-quarter 2026, according to oil and gas executives responding to the energy survey, and the Fed's business activity index, the survey's broadest measure of the conditions energy firms face in the Eleventh District, turned positive. The district includes Texas, Northern Louisiana and southern New Mexico.

However, oil and gas production was little changed in the first quarter.

Key Takeaways

• U.S. drillers won't respond at the flick of a switch.
• WTI was trading at $10 below current levels for September contract.

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).