Last week was a shocker for world trade and for stock markets, with the US announcing huge tariffs on all its trading partners – except Russia, Belarus and North Korea, which were not subject to any extra tariffs by President Trump, unlike every other country in the world – just think about that for a moment.
The defence of imposing tariffs on islands inhabited only by penguins from the American Secretary of Agriculture raises as many questions as it answers. This will unleash a Golden Age, apparently.
Markets thought otherwise.
Of course, President Trump took the decision to exclude oil and natural gas from his new tariffs, obviously, as the US remains the world’s largest consumer (over 20 million barrels per day) as well as one of the largest producers (over 13 million bpd).
But oil and gas producers, oilfield services companies and rig owners were all slammed by his announcement in the White House Rose Garden, even before China announced 34 per cent retaliatory tariffs on all American imports.
The news that Valaris managed to fix its seventh-generation drillship DS-10 to Shell for the Bonga North development in Nigeria at the very positive day rate of US$480,000 for minimum of two years starting in 2026 was quickly lost in a tide of pessimism.
The Shell share price was down 11 per cent on the week, Valaris’ own stock fell 23 per cent on the week and is now priced lower than it did in September 2021, when the company was just out of bankruptcy and deepwater rig day rates were still in the US$200,000s. The world’s largest supply vessel owner Tidewater closed at US$34.78 per share on Friday, 20 per cent lower than the price point where its CEO reinvested in the company only last month.
Are very small violins subject to tariffs as well? Asking for a friend.
However, it is hard to see how America can avoid higher inflation and higher interest rates this year if these measures remain in force.
Around 99 per cent of footwear bought in the USA is imported. I find it hard to believe that suddenly sweatshops sewing Nike trainers are going to be popping up across the land of the stars and stripes, able to compete with Vietnam, Indonesia and China, even with 40 per cent tariffs levied on Air Jordans made overseas.
The same goes for coffee, T-shirts, microwave ovens, and laptops. And the heavy, specialised machinery needed to fit out those hypothetical American footwear/garment/consumer electronics factories will also be subject to much higher tariffs.
It is unlikely that Dakota and Wyoming will be planting coffee plantations soon to replace the Colombian and Brazilian beans now slammed with tariffs.
So, prices in American shops are going up, demand is likely to fall, and even if the tariffs are suspended or negotiated down by America’s great negotiator in chief, great uncertainty remains in the global economy.
Higher prices will likely result in higher interest rates, and probably a recession. Higher uncertainty will reduce investment.
I find it equally implausible that there will be a renaissance in American shipbuilding in the next decade – labour costs are too high, the infrastructure is simply not there anymore, and the expertise migrated overseas in the 1970s.
Let’s remember what happened in that period – there were inflationary oil price shocks of the 1970s, massively higher interest rates and the withdrawal of America from the gold standard under Richard Nixon.
The inflation of the 1970s and early 1980s and the accompanying higher interest rates led to American de-industrialising, not re-industrialising. Why would it be different now?
There remains a huge void between the aspirations of Trump’s policymakers and their ability to deliver on these goals. The Secretaries of Commerce and Treasury seem to have unrealistic expectations of how long it takes to deliver on major capital projects, such as setting up a commercial shipyard or a factory and training up the labour force.
This is assuming that suddenly the million US dollar port call fees supposedly being implemented on Chinese-built ships calling at American ports did suddenly lead to a resurgence of American-built and -flagged ships. Where would these be built, and how would America be able to triple or quadruple the number of its merchant marine officers in less than a decade?
When White House advisor Stephen Miller complains that Americans buy Japanese and European cars, but that the Japanese and Europeans do not buy American ones, he doesn’t seem to have considered the logical answer that American-made cars, like most American-made commercial ships, are rubbish.
Of course, there are maritime cheerleaders out there, like marine journalist John Konrad, who seems to believe that the forty-year journey that led to South Korea and China dominating global shipbuilding can be turned around in four years by presidential decree, but I don’t buy it.
Not even Singapore, the most advanced and most high-tech economy in Southeast Asia backed by the deep capital reserves of a proactive state, can compete with China in commercial shipbuilding, and nor does it want to.
But last week was also a shocker for the oil price.
The heightened risk of a recession in the United States caused by the new tariffs was obviously not good for the oil price. Recessions typically reduce oil demand and reduce prices.
But worse, on April 3, seven OPEC states and Russia (the so-called "OPEC Plus" countries) unexpectedly agreed to speed up and bring ahead their plan to phase out oil output cuts. Even as stock markets were rocked by the news of the tariff increases, OPEC Plus decided unexpectedly to increase output by 411,000 bpd next month.
By Friday, Brent crude was standing at only US$65 per barrel, having previously lost four per cent when President Trump had announced his tariffs on trading partners. Oil was down nine US dollars a barrel in just two days.
OPEC Plus had been scheduled to raise output by 135,000 barrels per day in May, so the decision to boost output by 411,000 bpd came as a surprise. Not a pleasant one.
Bizarrely, Reuters reported OPEC as saying that the production increase was due to "continuing healthy market fundamentals and the positive market outlook." What have they been smoking?
The next OPEC Plus meeting to decide June output will be held on May 5. Until then, the decision to add more capacity throws more uncertainty on the oil markets and makes investment decisions by international oil companies harder to assess.
Of course, the falling oil price will make it harder to sustain the Russian war effort in Ukraine as Russia faces the double whammy of lower crude prices (Urals blend trades at a heavy discount to Brent as a result of sanctions) and very successful Ukrainian drone attacks on its refinery and pipeline infrastructure deep within Russian territory, which have reduced its export capabilities.
No surprise then, that ahead of the OPEC Plus decision, Russia was pressuring Kazakhstan, an overproducer of oil, by temporarily suspending exports of Kazakh crude from the Caspian Pipeline Consortium terminal in the Black Sea, adding more uncertainty to the markets, which also have to digest what will happen to Iranian output as America and Israel increase their pressure on Tehran.
Geopolitical risk also remains high. Again, not good for investment.
So, what do these surprising and destabilising decisions mean for the oilfield services market?
I think we are going to see a lot more caution with regards to newbuildings as the threat of lower oil prices and higher interest rates will make speculative newbuildings less attractive. That is great news for Tidewater, I admit.
Before the chaos hit, Sea1 Offshore announced that it had ordered two additional light construction vessels, which the company billed as “offshore energy support vessels” and will be built by COSCO Shipping Heavy Industry in China.
The two vessels are based on a similar design as the pair of Skipsteknisk’s ST-245 subsea vessel, which the company ordered in November 2024 at the same yard to serve both the oil and gas and renewables markets.
These are impressive vessels, as per Sea1's initial release. The ships will each be 120 metres long with a cargo deck area of 1,400 square metres. Each ship will also feature a 250-tonne deck crane and provide accommodation for up to 120 personnel as well as a remotely operated vehicle (ROV) hangar and a moonpool.
At the same time, as we reported last week, Taiwan’s Dong Fang Offshore ordered a new subsea vessel from Vard at a total price of close to US$125 million. The specifications of are very similar to those of the Sea1 vessels, suggesting that the subsea industry has converged on a new standard of diesel-electric deepwater support vessels designed for maximum operational flexibility and a variety of tasks.
The DFO vessel will be 121.3 metres long with a beam of 23 metres, and will accommodate up to 130 passengers and crew in 90 cabins. It will be fitted with a 250-tonne active heave compensated offshore crane, a 1,200-square-metre work deck prepared for cable repair, and ROV hangars on both sides.
Bizarrely, there are now more subsea light construction vessels on order for international service than there are platform supply vessels (PSVs), even though there are around eight times as many PSVs in service than subsea vessels.
Amongst the major owners, only Seacor has an order book for PSVs, just two 1000-square-metre clear deck vessels, as does Hercules Supply, which is affiliated to Fletcher Shipping. Other PSVs have been ordered in Brazil against long-term Petrobras charters.
We may see one or two new subsea vessels ordered, maybe, but higher interest rates and oil price uncertainty will likely close the door to newbuild opportunities in this segment.
Many of those 20 or so new PSVs ordered in China by Capital Offshore and Costamare were done so on the back of bumper profits from tankers and container vessels. Unfortunately, the threat of a trade war has seen shares in container vessel operators hammered.
Shares in A.P. Møller – Mærsk were down 21 per cent over last week on the Danish stock exchange. Costamare owns 68 container vessels as per its fleet listing and I suspect appetite from non-offshore owners to make a quick buck has evapourated faster than the desire of the penguins of the Heard and McDonald Islands to export their krill to America after the tariffs.
As a result of the uncertainty, I think deal-making in offshore in 2025 will be constrained by access to finance and worries by lenders over the oil price.
In late 2024 there were rumours of more big fleet deals, with Alphard Marine of India and Executive Offshore of Malaysia being touted for sale. Getting those deals across the line now will be much harder.
Instead, I think we will see more one-by-one vessel sales. In this respect, the breakup of the unlamented Southpoint fleet is instructive.
Southpoint was a Greek owner based in Athens with an eclectic fleet assembled from secondhand units bought cheaply in the market downturn, and initially managed by MCT of Athens.
Southpoint’s owner then bought the management in-house and tried a fleet sale at a price that market watchers considered remarkably highly priced, given the track record of the vessels and the lack of any firm long-term backlog. The fleet sale failed.
But the fleet was sold one by one, and new owners are now taking over the ex-Southpoint tonnage. Hind Offshore of India has bought the anchor handler Cronus P, Amsol of South Africa is taking Panos P for service in its domestic market, and Blue Ridge of Singapore is also buying a duo of anchor handlers from the Greeks.
Efforts by Promar to sell its five large offshore support vessels so the company can focus on its crewboat fleet also appear to have hit difficulties, and the ships are now rumoured to be offered as singletons to any interested parties.
This tells me that the appetite and financing capacity for fleet deals may be drying up.
Similarly, Seabrokers has reported that ADNOC Logistics and Services (which did big fleet deal to acquire the ENAV fleet in 2024) acquired two more anchor handlers for its Abu Dhabi-based fleet in recent months.
ADNOC L&S took POSH Raptor, which has been renamed ADNOC A12, and the 75-tonne bollard pull ASL Leo, which the UAE company acquired from ASL Offshore and Marine in Singapore, now renamed as ADNOC A13.
One the sale side, all of POSH’s recent disposals have been to different owners, including the sale of the 150-tonne bollard pull anchor handler POSH Persistence to Star Matrix of India out of warm-stack in Batam in December last year, and the UT755 design PSV POSH Puffin to Nigerian owners, who renamed the ship Angel Jacqueline and put it into service out of Onne port.
The same dynamics can be seen in the exit of Seacor from its anchor handling fleet and in Borealis’ recent disposals. Britoil has continued its vessel by vessel growth by taking Seacor 88 and Seacor 888, both medium-sized anchor handlers, the former of which has been renamed Britoil Dominance and is trading in Angola, whilst Seacor 888 remains working in Saudi Arabia.
The third and final Seacor anchor handler, the 120-tonne DP2-capable Norman F. McCall, has reportedly been sold to P&O Repasa in the Canary Isles.
DDW Offshore has been trying to offload its three anchor handlers en bloc for a long time. But earlier this year, it admitted failure to find one buyer for all three, and ended up selling only Skandi Peregrino to an affiliate of Go Offshore of Australia for a reported price of US$25 million.
The DP2-capable Skandi Peregrino was built in 2010 in Norway to the STX AH08 design and has a length of 75.09 metres, a deck area of 550 square metres, and a bollard pull of 186 tonnes. The other two ships remain for sale, we understand.
Borealis did manage to sell a trio of the former World Supply Damen 3300 design PSVs to Tamrose of Nigeria last month for US$68 million, but the fourth sister vessel, Aurora Pearl, was sold as a standalone to Mexican owner TMM.
With so much uncertainty clouding markets, financing for big fleet deals will be tough. Those who sold in 2024, especially Astro Offshore and Atlantic Navigation in the UAE, to Adani and MAG Offshore, respectively, may have been the last big deals in some time.
In a world fragmented with tariffs and trade divisions, uncertainty and risk are climbing. Deal making in offshore is going to be smaller and more piecemeal.
Prove me wrong.
Background reading – the New Zealand court of enquiry
We love to stretch a good metaphor. So, when you read the New Zealand court of enquiry report into the circumstances that resulted in the loss of the survey ship HMNZS Manawanui off Upolu, Samoa, on October 6, 2024, it is hard not to draw parallels with American policymaking with the ship of state commanded from Washington DC:
"Attempts by the ship’s bridge staff to alter the course to starboard had no appreciable effect. Shortly after, as the ship left the approved survey area and in an effort to stop the ship, control orders were made that the officer on watch believed would have resulted in the ship applying full power astern.
"These control orders did not result in the ship stopping, rather the ship started to accelerate, maintaining an approximate heading of 340° towards the reef. The ship grounded for the first time at or about 18:17:59 at a speed of around 10.7 knots.
"The ship proceeded to travel an additional 365 metres before becoming stranded, grounding multiple times along the way. Full control of the ship’s propulsion system was not regained until approximately 10 minutes later at 18:27:40 when the ship’s autopilot was disengaged.
"Attempts were then made to manoeuvre the ship off the reef. These efforts were not successful... At some point after abandonment the ship suffered a series of catastrophic fires prior to capsizing and sinking."
The court concluded that “the risk management culture within the organisation was deficient as the necessary priority and attention was not afforded to risk management as typified by this evidence and the lack of application of policy and procedures...”
As the world economy enters its riskiest period since the Great Recession of 2008-09 or the oil price shocks of the 1970s, both governments and companies will need to look to their own risk management strategies in these difficult and volatile times.
Meanwhile, HMNZS Manawanui remains underwater on the Pacific reef that ripped holes in its hull, a powerful metaphor for the hollowing out of experience and capability within the Royal New Zealand Navy, and a reminder that basic failures of understanding equipment settings can be disastrous.