Will Energy Tariffs Backfire On Trump?

We’re going to see a lot of posturing over the next few weeks and months as the U.S. government transitions into the Trump administration. 

Of all the threats to geopolitical instability across the world today, the one I’m least worried about are potential tariffs that President Trump has said he’d implement on Canada’s energy industries… but probably not for the reasons you think. 

I know, I know. The incoming President-elect is looking to start negotiating from a position of strength; after all, using your leverage is one aspect to the art of the deal. 

However, for all the brays and bluster over slapping 25% levies on Canada’s oil and gas industry that have been splayed throughout the media, it’s hard not to see it for the bluff it is. 

Why?

Well, let’s take a look.

There’s a bit of a misconception surrounding Canada's energy exports to the United States. 

For the record, I’m not referring to the recent reply from Ontario’s Premier Doug Ford that Americans would also feel the pain from tariffs; that Canada could shut down electricity exports to the U.S.

Truth is, the amount of electrical power we buy from Canada is trivial — less than 1% of our annual power consumption in 2023. That’s also not to mention that we’re buying even less electricity from our friendly neighbors to the north this year. 

No, what we’re concerned about most are the 4 million barrels of Canadian crude that flow into the United States — every single day! 

If you want to talk about leverage, Canada is holding all the cards in this game of poker. 

To put a little perspective on this, that means roughly six out of every ten barrels of oil we import comes from Canada — that’s 300% more crude than we buy from ALL of OPEC on a daily basis. 

Go ahead and take a  look for yourself:

Click Image to Enlarge

But I believe things are a little more complicated than President Trump realizes.

You see, it’s not necessarily the sheer volume of black gold flowing down from Alberta. Far more important than the quantity is the quality of the oil we’re buying. 

Believe it or not, the true value of our Canadian oil imports lies in the fact that we’re talking about heavy crude, nearly all of which comes from the oil sands in northern Alberta. 

What most people don’t realize is that most of the United States’ oil refining capacity can be found along the Gulf of Mexico in Texas and Louisiana, and that those refineries are geared toward processing heavy crude. 

That’s the one downside of all that tight oil we pump out of the Permian Basin — it’s the light, sweet variety that is perfect for products like gasoline. Those Texas drillers aren’t pumping out heavy oil that our Gulf refineries crave most. 

Now take this one step further…

It’s no secret that President Trump despises the Maduro regime in Venezuela. He slapped crippling sanctions onto Venezuela when he was in office. It wasn’t until President Biden balked and started allowing Maduro to sell us his oil again (after winning a clearly corrupt election, I might add). 

Once President Trump takes office, how quickly do you think it’ll take him to start cracking down on Maduro again?

There’s more than just renewed sanctions at play, too. 

On May 1, 2024, the Trans Mountain expanded system pipeline officially went into operation, which nearly tripled the pipeline’s capacity to 890,000 barrels per day. This pipeline connected the heavy oil coming out of the oil sands with something Canadian oil companies have long sought — access to Asian markets. 

At current crude prices for Western Canadian Select, that gives Canada’s oil and gas industry a buffer valued at about $51.7 million per day, or more than $18 billion annually. 

Look, I don’t think President Trump is ready to go scorched Earth against Canada’s oil and gas industry. At the very least, we’ll see exemptions for Canada’s energy industries, because like Premier Ford said, it’ll hurt us just as bad as them. 

The thing is, I also don’t think we’re the only ones that recognize the true value of Canadian oil, or the part that the oil sands will play in meeting future demand in both the U.S. and Asia. 

In fact, I think it’ll even tempt the $325 billion pursestrings of Warren Buffett.