Rachel Reeves has indicated support for increasing oil and gas production amid growing speculation that the UK Government could shift towards a more supportive fiscal regime for the North Sea.
The Chancellor praised countries such as Canada and Norway for stepping up output as tensions in the Middle East, and threats to shipping through the Strait of Hormuz, raise fresh concerns about global energy security.
The comments come just weeks after Reeves told oil and gas operators she wants to end the Energy Profits Levy next year – three years earlier than planned - although that change has yet to be confirmed.
Speaking yesterday, Reeves said oil and gas continued to play an important role in ensuring reliable supplies.
“There is an important role for oil and gas, especially at the moment,” she said.
“You see countries like Canada and Norway increasing their production, and every country's got to play their part in ensuring that those energy supplies are there when we need them.”
Her remarks come as the government faces mounting pressure from industry and opposition figures to strengthen support for domestic production in the North Sea.
The Strait of Hormuz – one of the world’s most critical energy chokepoints – handles around a fifth of global oil shipments. Recent tensions in the region have heightened fears of supply disruption, reinforcing calls for countries to prioritise domestic production where possible.
Labour has pledged not to issue new oil and gas exploration licences in the North Sea, while allowing existing fields to continue operating for the remainder of their lifespan, albeit with an effective tax rate of 78% until 2030 under the current Energy Profits Levy.
The result has been falling production, plummeting investment, no new wells for the first time since the 1960s and estimates of 1,000 jobs losses per month.
Claire Coutinho, the Conservative Shadow Secretary of State for Energy, described the Chancellor's comments as "extraordinary".
She said: “Rachel Reeves praises Canada and Norway for increasing their oil and gas production… whilst banning new oil and gas licences in Britain.
“Labour support foreign oil and gas industries more than our own.”
Russell Borthwick, chief executive of Aberdeen & Grampian Chamber of Commerce, said the recent instability in global energy markets strengthened the case for investment in the North Sea.
“The past few weeks have underlined why the UK must create the conditions for greater activity in the North Sea – producing more of the oil and gas we need from our own waters rather than relying on costly, higher-emission imports during a period of geopolitical instability,” he said.
“Our energy industry stands ready to invest £50billion in new projects by 2050 under the right conditions, supporting UK households, jobs and the wider economy. But that investment depends on government action.”
Mr Borthwick said the government should prioritise three areas to unlock investment.
“First, the Energy Profits Levy continues to deter investment and put thousands of jobs at risk. Implementing the new Oil and Gas Price Mechanism now would protect employment, unlock investment and strengthen energy security.
“Second, government must end the regulatory limbo holding up Jackdaw and Rosebank and approve both projects without delay. Together they represent £8billion of UK investment, support around 3,000 supply chain jobs and could heat millions of homes as older fields decline.
“Third, ministers should move quickly to enable tieback developments — or go further by allowing more pragmatic licensing aligned with the UK’s energy needs.”
Reeves’ comments follow a recent meeting with oil and gas operators at No.11 Downing Street, where she signalled her intention to end the Energy Profits Levy earlier than planned and work with the sector on a new long-term fiscal regime.
Industry leaders have argued that replacing the levy with the proposed Oil and Gas Price Mechanism could unlock billions of pounds of investment and help stabilise the UK’s energy supply during a period of global volatility.