The energy trade between Canada and the United States, which serves as a cornerstone of their bilateral relations, may be upended by a proposed 25% tariff on Canadian oil imports. Such a measure, recently discussed by U.S. officials, would strain Canada’s economy while destabilizing the balance of the North American energy market.
An Essential Energy Partnership
Canada, the leading supplier of crude oil to the United States, accounted for nearly 60% of U.S. oil imports in 2022. This interdependence is largely supported by strategic infrastructure such as the Keystone XL pipeline, which efficiently transports Alberta’s heavy oil sands crude to U.S. refineries, predominantly located along the Gulf Coast.
Despite the mutually beneficial relationship, energy trade between the two countries has been marked by recurring tensions. The proposed U.S. tariff aligns with a growing trend of economic protectionism aimed at reducing reliance on foreign oil imports while addressing environmental criticisms of Canadian oil sands, often criticized for their high carbon intensity.
Economic Repercussions for Canada
A 25% tax on Canadian oil exports would have immediate and significant consequences for Alberta, the heart of Canada’s oil industry. Such a measure would increase import costs for U.S. refineries, reducing demand for Canadian crude. In turn, Canadian producers would face a sharp decline in revenue, putting thousands of jobs at risk across Alberta’s energy sector.
Canada, heavily reliant on U.S. markets, would need to explore alternative markets such as Europe or Asia. However, tapping into these markets would require substantial investments in infrastructure, particularly pipelines capable of redirecting exports. The loss in revenue would also severely impact the fiscal budgets of Alberta and the federal government.
Consequences for the United States
Although the United States aims to bolster its domestic industry with this tariff, it would not be immune to its side effects. U.S. refineries specifically designed to process Canada’s heavy crude would struggle to adapt to alternative sources, leading to higher operational costs. This situation could ultimately result in increased energy prices for American consumers.
Moreover, the proposed tariff risks disrupting global oil markets, already strained by geopolitical tensions and the war in Ukraine. Limiting access to a stable supplier like Canada could exacerbate volatility in an already precarious global energy balance.
Alberta’s and Canada’s Response
Faced with this threat, Alberta Premier Danielle Smith has intensified efforts to advocate for the province’s interests. By engaging with U.S. policymakers, she aims to highlight the economic and energy interdependence between the two nations.
Alberta is also prioritizing export diversification. The expansion of the Trans Mountain pipeline, designed to open new export routes to Asia, is a critical component of this strategy. Meanwhile, the federal government is exploring legal options to challenge the tariff under the Canada–United States–Mexico Agreement (CUSMA) while strengthening support for affected industries.
A Global Context of Uncertainty
Although the tariff remains in the proposal stage, it reflects a broader reality: energy transition policies and protectionist dynamics are redefining the economic and political priorities of both producers and consumers. For Canada, heavily reliant on the U.S. market, this situation underscores the urgency of diversifying its export destinations and modernizing its energy infrastructure to maintain competitiveness.
