Foreign investment in the United Kingdom’s energy sector dropped to its lowest level in over a decade last year, primarily due to a sharp decline in oil and gas projects, according to recent data from EY, a professional services firm.
The number of foreign direct investment (FDI) projects in the UK energy sector fell by 51%, from 55 projects in 2024 to just 27 in 2025. This represents the second consecutive year of decline and the lowest volume of foreign investment in energy projects since 2013, when only 14 projects were approved. The most significant factor behind the decrease was an 81% reduction in foreign-funded oil and gas initiatives, which fell to three projects last year from 16 in 2024, mirroring levels seen in 2023.
The North Sea oil and gas industry has expressed concerns over the prevailing tax environment, citing it as a key barrier to attracting foreign capital. The Labour government has maintained a moratorium on new North Sea drilling licenses and continues to impose a windfall tax on operators’ profits. These policies, combined with uncertainty about upcoming fiscal measures, including the potential for higher taxes in Chancellor John Healey’s forthcoming budget, have contributed to a cautious investment climate.
EY’s broader survey of international investors highlighted several challenges facing the UK market. High energy costs were identified as the greatest deterrent to investment, alongside political instability and elevated labour and input costs. Almost one in four survey respondents emphasized the need for government action to reduce energy prices, while 20% called for simplification and reduction of taxes.
Annie Graham, EY’s industrials and energy leader, emphasized the importance of strengthening and diversifying the UK’s energy supply to regain investor confidence. She noted that energy is critical not only as a sector for capital investment but also as a foundational enabler for energy-intensive industries such as artificial intelligence data centres and steel production. Graham pointed to the UK’s renewable energy assets as a competitive advantage but stressed that accelerated grid connection times and planning reforms would be necessary to encourage further private investment in energy infrastructure.
Despite challenges in the energy sector, the UK retained its position as the second most attractive destination for foreign investment in Europe, behind France. However, the overall European market experienced a 36% decline in energy-related foreign investment projects year-on-year, indicating a broader regional trend.
While technology and business services sectors continue to draw substantial foreign interest, energy’s current outlook underscores the importance of policy decisions in maintaining the UK’s competitiveness and securing the long-term stability of its energy supply.