The rising energy pressures linked to instability around the Strait of Hormuz highlight a more fundamental issue – whether the UK is willing to maintain influence over its own energy position or continue drifting towards greater dependency.
The UK Government is attempting to balance energy security, transition commitments and fiscal pressure. The Energy Profits Levy (EPL) remains in place, alongside restrictions on new licences and a lack of long-term fiscal clarity for all involved. Each decision can be justified in isolation. Taken together, they are sending a more consequential signal – one that is shaping behaviour across the sector.
That signal is uncertainty, and it is already influencing investment needed to maximise the extraction of the UK’s available oil and gas reserves.
Recent media reporting has refocused attention on the scale of the North Sea’s historical and potential contribution. In the mid-1980s, the UK was the fifth largest oil producer globally, and North Sea revenues accounted for around 6% of total government income. Today, the UK sits much further down the global rankings, and production has declined sharply, but the narrative that the basin is effectively exhausted does not fully reflect the underlying data.
Alan Stewart, Tax Partner, MHA, the accountancy and business advisory firm.
According to the North Sea Transition Authority (NSTA), around 80% of known gas reserves have been extracted. Much of the remaining 20% is more complex and more expensive to access, but it is not insignificant. The critical point is that how much of that resource is ultimately recovered is not predetermined by geology alone. It is shaped by policy, tax and investment conditions. That distinction matters.
Ongoing instability in the Middle East, including disruption to key shipping routes and supply chains, has already driven energy market volatility. Market data shows oil prices rising sharply in response to intensifying conflict, with clear implications for inflation and interest rate expectations. The UK, with its increasing reliance on imported gas, is particularly exposed to these external shocks.
The domestic supply gap is already evident. The UK was once self-sufficient in gas and a net exporter. Today, demand exceeds supply, with the shortfall met by imports from Norway and liquefied natural gas (LNG) from other global markets, particularly the US. Under current projections, that reliance is set to increase.
Alternative scenarios suggest a different outcome. Industry modelling indicates that with higher levels of domestic production, the UK could materially reduce its dependence on imported LNG over the next decade. This has implications not only for energy security, but also for cost and emissions. Imported LNG is typically more carbon-intensive.
With no new licences for exploration in new fields - unless there is a material change in UK Government policy - the question is no longer how to stimulate future activity, but how much of the remaining basin will realistically be developed under current conditions. It also brings into focus how far the UK is willing to rely on imported oil and gas.
The North Sea is a mature basin. The majority of easily accessible resources have already been produced. What remains is more technically challenging, more capital intensive and more sensitive to fiscal and regulatory conditions.
Against that backdrop, capital is increasingly being directed towards regions where long-term visibility and stability are clearer. That is not unique to the UK - it reflects how global operators allocate investment - but it has direct implications for the North Sea.
The result is not just lower activity, but a narrowing of future options. Decisions taken now will determine not only how much resource is recovered, but how the UK balances its energy mix as demand evolves and the transition progresses.
The debate, therefore, is no longer about whether the North Sea is in decline. It is about pace - and whether that pace is being set by geology or by the prevailing conditions around the industry today, with clear implications for the UK’s future reliance on imported oil and gas.
Alan Stewart is an Aberdeen-based tax partner at accountancy and business advisory firm MHA, working with clients across a range of sectors including energy. MHA is the UK member firm of Baker Tilly International. MHA's Aberdeen office is located on Carden Place.
For more information, visit www.mha.co.uk