Canada and the Tariff war – Part Two – Oil

Canadian oil has to pass through the US because they cancelled their own pipeline, because “net zero.” So, Canada’s oil and gas is cut off from the eastern part of the country and they have to use pipelines that flow through the US to get to the east. Now they will have to pay tariffs on their own oil, as it re-enters Canada.

Here’s an oil worker explaining in plain English why retaliation will backfire spectacularly. Hear him out. Unintentionally, he spells out the real problem for the USA. Oil refineries. The last major oil refinery built in the United States was constructed in 1976. That needs to change.

The tariff war with Canada will make oil more expensive for the U.S. as Canada supplies a lot of our oil, about 60%. The 10% tariff on Canadian oil could make gas prices go up since many U.S. refineries, especially in the Midwest, use this Canadian oil. If they can’t get this oil easily, they might have to buy more expensive oil or run less, leading to less supply and higher prices for gas. This might also push the U.S. to produce more of its own oil, but that won’t fix the problem right away because not all refineries can use the type of oil we have here.

Alternatives?

  • Oil is traded on a global market, so the U.S. has options to source crude from various countries. Countries like Saudi Arabia, Iraq, Russia, and Mexico (for non-tariffed oil) are among the world’s leading oil exporters.
  • Alternative Suppliers:
    • Saudi Arabia consistently ranks among the top oil exporters globally. They have significant excess capacity, which could be tapped into for U.S. imports.
    • Iraq has been increasing its oil production and exports, offering another viable source.
    • Mexico, despite being part of the tariff discussions, might still export oil to the U.S. if specific exemptions or negotiations allow for it, especially considering the interconnected nature of North American oil markets.
    • Venezuela has heavy crude similar to Canadian oil but is less likely due to U.S. sanctions, though political maneuvering could change this.
  • Logistics and Quality:
    • While finding alternative suppliers is feasible, not all oils are the same. U.S. refineries, particularly those configured for heavy Canadian crude, might need adjustments or different refining processes for oil from other countries.
    • Transport logistics can also affect costs and efficiency, especially if the oil comes from further away like the Middle East.
  • Market Dynamics:
    • Importing from other countries could lead to shifts in global oil trade patterns, potentially affecting global oil prices and supply chains.
    • The U.S. could look into increasing domestic production or sourcing more from friendly nations to avoid tariffs, but this would depend on the type of oil and the refineries’ capabilities.

The situation with tariffs on Canadian oil might push the U.S. to diversify its oil import sources, but this would come with considerations of cost, quality compatibility, and geopolitical relations.