Canada’s oil industry shaken by Donald Trump’s tariff threat

Canada’s oil industry shaken by Donald Trump’s tariff threat

Canada’s oil-rich province of Alberta is grappling with growing unease following President-elect Donald Trump’s announcement of a potential 25% tariff on Canadian goods. The proposed tariff, set to take effect when Trump assumes office in January, would cover all imports from Canada and Mexico, with no explicit exemptions for oil and gas.

The move has sparked concern among Canadian politicians and energy experts, who warn of severe economic consequences for Canada and potential price hikes for U.S. consumers. Dennis McConaghy, a former Alberta-based energy executive, emphasized Canada’s reliance on its trade relationship with the United States, where 80% of its exports are destined, a significant portion of which are hydrocarbons.

“Canada has no choice in this,” McConaghy noted, underscoring the urgency of finding a resolution with the incoming administration. A tariff on oil, he warned, could lead to job losses in Alberta, reduced oil production, and a ripple effect across Canada. Wealthier provinces like Alberta provide financial transfers to poorer provinces, funding essential social services. Any economic downturn in Alberta could disrupt this balance, creating national repercussions.

Lisa Baiton, president and CEO of CAPP, warned that the levy would likely force a reduction in oil production, exacerbating economic challenges. Such a move could also further weaken the Canadian dollar, which is already under pressure due to domestic economic factors.

South of the border, U.S. fuel manufacturers have also raised alarms about the potential fallout. The American Fuel and Petrochemical Manufacturers (AFPM) industry group stressed the importance of Canadian crude oil to U.S. refineries, particularly in regions lacking sufficient domestic infrastructure, such as California, the Midwest, and the Northeast. Approximately 40% of the crude processed in U.S. refineries is imported, with Canada supplying the majority. The Midwest, in particular, relies heavily on Canadian heavy crude due to refinery configurations tailored for these blends.

The AFPM likened crude oil to flour for bakeries, emphasizing its critical role in fuel production. A 25% tariff, they warned, would significantly increase refinery costs, driving up fuel prices for U.S. consumers. Midwest states like Minnesota, Wisconsin, and Michigan could see gas prices rise by as much as 75 cents per gallon, according to gas price analyst Patrick De Haan. Higher oil costs could also impact airlines and freight haulers, compounding economic pressures on businesses and consumers.

Trump’s proposed tariff appears to conflict with his campaign promise to reduce energy costs for Americans. While he frequently pledged to lower gasoline prices to under $2 per gallon, analysts note that the current national average hovers around $3. The tariff could further strain this goal by raising production costs and increasing reliance on more expensive overseas oil sources, undermining U.S. energy security.

Though the tariff remains uncertain, experts speculate it could be a strategic negotiation tactic. Trump has hinted that the levy would remain until Canada and Mexico bolster border security measures, addressing migration and drug trafficking concerns. Whether this threat materializes or becomes a bargaining chip in broader negotiations, the uncertainty has already left Canada and Alberta in particular on edge.