ENRC sector rises to the tariff challenge
Energy, natural resources, and chemicals companies employ proactive risk management and strategic adjustments to sustain competitiveness
New US tariffs will have far-reaching consequences for the energy, natural resources, and chemicals (ENRC) sector. Companies are likely to grapple with heightened production costs, supply chain disturbances, and market instability—pressures that could strain margins and operations. Announced by the Trump administration in April 2025 and now going into effect following country-by-country negotiations, the tariffs have been imposed on a wide range of products, including energy-related imports and exports, chemicals, and raw materials.1
KPMG LLP surveyed C-suite executives in May 2025 to explore how companies across industries including ENRC are navigating this volatile environment.2 Despite the challenges, companies in the sector are tackling issues head-on by acting early with procurement, sourcing domestically, and diversifying their supply chains to ease immediate pressures.
Significant financial and operational impacts
The ENRC sector faces significant financial pressure, with 59 percent of respondents reporting a 6 percent to 10 percent drop in gross margins, well above the 22 percent overall participants that reported declines in gross margins, underscoring its acute vulnerability to tariff disruptions.
In foreign operations, respondents reported the greatest impact of proposed tariffs on raw materials (cited by 30 percent of respondents), manufacturing and in-house production (20 percent), and intermediate goods (17 percent). These results suggest broad-based implications across production and supply chains.
Additionally, the sector is dealing with a substantial contraction in foreign sales, with 54 percent of respondents reporting a decrease of 16 percent to 25 percent. This decline surpasses that of all other industries, intensifying the pressures on ENRC firms to maintain international competitiveness and market presence.
Despite the challenges, confidence within the sector remains high. Although 25 percent of respondents said they are neutral about the stability of current US tariff levels for planning and investment decisions, 60 percent expressed confidence in navigating these challenges.
Robust risk management
In response to fluctuating tariffs, the ENRC industry has prioritized risk management. Among surveyed ENRC executives, 63 percent said they have actively assessed high-risk third parties, while 57 percent said they have improved data collection on these entities. These results are in line with those from other industries. Nevertheless, ENRC respondents recognized their dependencies, with 51 percent acknowledging that between 26 percent and 50 percent of their tier-2 and tier-3 suppliers are reliant on single-country sources for tariff-sensitive inputs. Companies are addressing this risk by increasing geographic and supplier flexibility and minimizing tariff exposure through sourcing from regions with favorable trade agreements.
Adjustments to investments, pricing, and supply chains
The uncertainty surrounding tariffs has prompted 63 percent of ENRC respondents to postpone or scale back capital investment, with 59 percent saying they have halted capital investment plans for up to a year—in line with other sectors. At the same time, 30 percent reported no changes to their capital strategies.
According to surveyed ENRC executives, operations most affected by tariffs include supply chain infrastructure improvements (72 percent) and new technology, research and development, and product development investments (58 percent). These results align with the other sectors surveyed; however, ENRC respondents showed unexpected resilience through operational efficiency enhancements, including leveraging lean operating systems and advanced procurement strategies to offset potential cost increases.
ENRC companies are taking several additional steps to adapt to the new economic realities. Among respondents, 92 percent said they have shifted up to 50 percent of tariff costs onto customers, a significantly higher level than in other industries. In another move to contain costs, ENRC firms are actively pursuing supply chain reconfigurations (63 percent of respondents) and operational efficiency enhancements (51 percent) as primary countermeasures to mitigate ongoing tariff pressures.
92 percent of respondents said they have shifted up to 50 percent of tariff costs onto customers, a significantly higher level than that in other industries.
Frederick Morris
Managing Director, Infrastructure, Capital Projects, and Climate Advisory, KPMG US
ENRC companies are also exploring moving supply chains to foreign sources with lower tariffs (27 percent of respondents) and increasing prices to protect profit margin (20 percent). Among ENRC respondents, 81 percent said it would be “somewhat to highly feasible” to bring their company’s manufacturing or operations to the United States, compared to an average of 69 percent overall. However, such a move comes with challenges: The most prevalent hurdles cited were higher operating costs (73 percent) and higher labor costs (71 percent) associated with reshoring. These percentages are higher than the average of sectors surveyed, 66 percent and 61 percent, respectively.
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Despite significant financial hits and operational hurdles, industry executives are not only maintaining confidence but also are taking decisive steps in risk management and strategic investment. By passing costs to customers, re-evaluating supply chains, and fine-tuning operations, ENRC companies position themselves to remain competitive. With a focus on resilience and strategic adaptability, the ENRC sector is proactively navigating tariff-related complexities to position itself for long-term growth.
Footnotes
2 In May 2025, KPMG surveyed 300 US C-suite executives in various functions about their views on the US proposed tariffs and their effect on their company and industry. Of the total surveyed, 63 were in the ENRC sector.
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