The introduction of US tariffs on Canadian and Mexican oil could disrupt North American supply chains. According to a report from Wood Mackenzie, these measures would impact demand in the United States and redirect some exports to other parts of the world.
Consequences for Mexico
A 25% tariff on Mexican crude would push its exports out of the US market. Around 600,000 barrels per day (kb/d) of oil currently imported by the United States could be redirected to Europe and Asia. However, this shift might be partially offset by the shutdown of Lyondell’s Houston refinery and the commissioning of Pemex’s Dos Bocas refinery.
US refineries, particularly those on the Gulf and West Coasts, would need to find alternatives to Mexican supplies. Heavy crude imports from Latin America and the Middle East, particularly from Iraq, could increase. However, these alternatives come at higher costs compared to Canadian and Mexican imports.
Canada’s Role in the New Balance
If the United States imposes a 10% tariff on Canadian crude, its consumption would remain stable in the Midwest and the Gulf Coast. Midwestern refineries, being landlocked, mainly depend on Canadian supply and have limited alternatives.
On the other hand, opportunities would emerge for Canadian oil in non-US markets. The Trans Mountain Pipeline (TMX) would facilitate crude exports to Asia, reducing volumes shipped to the US West Coast. The report notes, however, that re-exports via the US would not be subject to tariffs, providing flexibility for Canadian exporters.
Impact on US Demand
Wood Mackenzie projects a reduction in US oil demand by 50,000 barrels per day by 2026 due to moderately higher refined product prices. However, US producers are unlikely to compensate for this deficit. Despite growing production in the Permian Basin, investment in exploration and drilling remains disciplined, limiting the market’s ability to adjust quickly.
Discussions around these tariffs are ongoing, and their implementation has been postponed by a month. The uncertainty surrounding this policy could result in a revision of the measures or a tightening of restrictions on North American oil imports.
