After US President Donald Trump agreed to hold off on a 25% tariff for 30 days, a major trade war between the US and Canada was avoided. But anger has erupted in Canada, with people calling for a boycott of US products, and some even calling to stop the export of oil to the country’s southern neighbour.
However, preventing Canada from moving its nearly all of its crude oil to the US via a network of pipelines could result in significant economic costs.
Additionally, Canada’s exports would need to diversify after decades of close trade ties spewed by the North American Free Trade Agreement (NAFTA), which Trump renegotiated during his first term in office from 2017 to 2021.
Thus, in theory, Canada could use its tariff threats to pressure Trump into back down on the oil flow into the US. However, as the pipelines pass through US territory, doing so would cause disruption to the supply of crude to refineries in Canada’s east.
How does Canada’s oil pipeline work?
The main criticism is regarding the construction of Canada’s pipeline infrastructure. It travels through the US to reach Canada’s eastern side, where the majority of the oil is produced, but it starts in western Canada.
Most of the oil is produced in the Western Canada Sedimentary Basin (WCSB), which comprises the provinces of British Columbia, Alberta, Saskatchewan, and Manitoba.
The crude oil is carried through pipelines passing through the US to reach Canada’s east coast provinces, including Ontario and Quebec, where it is refined. So the network of pipelines, some of which were constructed in the 1950s, serve both the refineries in the US and Canada.
“Canada and the US made a conscious decision to integrate their energy infrastructure”, Gitane De Silva, former CEO of government agency Canada Energy Regulator (CER), told Al Jazeera. “It’s been that way for a really long time”.
The US, Canada, and Mexico ratified the NAFTA Agreement in 1994, which eliminated the majority of tariffs and established conditions for energy cooperation.
“When the agreement was ratified, there was a desire in the US for Canada to export as much energy as possible”, De Silva said. The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA under Trump in 2020, maintains most of NAFTA’s provisions regarding energy.
The construction of pipelines is also influenced by geography.
The continental shield and the Great Lakes pose a challenge for pipeline construction from Alberta to Ontario and Quebec, according to De Silva. Nearly half of Canada’s landmass is composed of extremely old and hard Precambrian rock.
Canadian oil flows to parts of the US, such as the Midwest, where some of the refineries are located. Eastern provinces are farther away from the US refineries than eastern US ones. For instance, British Colombia’s oil region is more similar to California in the United States than Ontario, a province in Canada.
What is the oil export volume to the US from Canada?
Almost all of Canada’s crude oil exports – about 97 percent – were exported to the US in 2023, according to CER.
In 2022, 60 percent of US oil imports were from Canada, according to the US Energy Information Administration.
In 2024, Canada produced 5.7 million barrels of oil per day, according to the Canadian Association of Petroleum Producers. Every day, US exports total 4.3 million barrels of petroleum products.
Could Canada stop importing US crude oil?
Theoretically yes, but it is unlikely, experts say.
The federal government does, in theory, have the authority to stop the exports. But De Silva said that would be complicated, as Canada is a confederation, which means the federal government and provinces share power. The provinces are in charge of oil production.
“There are definitely legal questions there, because Canada’s never done it before”, De Silva told Al Jazeera, adding that disagreements could cause a “domestic constitutional crisis”.
De Silva added that after turning the tap off, there is also the question of where the oil will be kept. It will be difficult to locate additional 4 million barrels per day when pipelines are full.
De Silva added that if Canada’s government decides to stop producing oil in the US, there would be a question mark over how Ontario, Quebec, and New Brunswick would get their oil. It raises the question of whether the US would stop the flow of oil to eastern Canada by passing through US control.
According to the 1977 US-Canada transit pipelines agreement, no public authority in the US or Canada shall institute measures “which are intended to, or which would have the effect of, impeding, diverting, redirecting or interfering with in any way the transmission of hydrocarbon in transit”.
While breaches of the treaty can be challenged in court, “with the Trump administration, I don’t know if they are that focused on those international treaties”, De Silva said.
Last month, speaking at the World Economic Forum in Davos, Switzerland, Trump said “We don’t need their]Canada’s] oil and gas. We have more than anybody”. In order to make up for a potential Canadian oil stoppage, he has pledged to drill more well.
There are other ways to transport crude oil from the west of Canada to the east, including by rail, truck, marine, and tanker. However, said De Silva, “pipelines are the safest way to transport oil and gas. They are also the most efficient and most cost-effective, so it would not be a complete solution, it would not be an ideal solution, but it would be an option, if needed”.
According to 2024 data from CER, pipelines exported 89.6 percent of Canada’s crude oil. The remainder was sent via other networks and by rail.
De Silva stated that Canada has been looking for new export markets for its oil. However, there is no overnight solution for this, she added.
Concerns were raised about the need for Canada to overhaul its pipeline strategy even during the previous US president Joe Biden’s administration. Due to concerns about climate change, Biden abruptly terminated the Keystone XL crude oil pipeline from Canada to the US on his first day in office.
In a report released in 2021 by the Montreal Economic Institute (MEI), economist Miguel Ouellette wrote, “We see that now, with the new administration, it can become very dangerous for us to have only one client for our exports.”
Deliveries to Asia are likely to rise if Trump implements tariffs, according to Trans Mountain, a Canadian pipeline operator, according to a report released on Tuesday by Reuters. Oil was moved to the Pacific coast of Canada last year, where it is transported on tankers to China, Japan, and South Korea.
De Silva argued that Canada’s economy would suffer as a result of a US ban on oil exports. “The oil sector is the largest driver of our economy”, she said. The federal government should consider this because the US is our largest export market, and that would have an impact on domestic trade that would be nearly as significant or significant as the US’s.
What else is at stake?
In 2022, 79.2 percent of Canada’s refined oil came from the US, according to data from the Observatory of Economic Complexity (OEC).
The US imports Canadian crude oil, which is refined in the US’s Midwest before being exported back to Canada and the rest of the world.
De Silva argued that one of the ways Canada is preventing tariffs is that it “exports affordable, reliable, secure energy produced with high standards for human rights and] and sells that to the US at a discount.” Then, at a significant price, the US refiners purchase that, refine it, and return it to Canada and the rest of the world.
The higher tariffs could make fuel expensive, pushing up inflation. They could also impact export-oriented sectors, leading to job losses – which would negatively impact Prime Minister Justin Trudeau’s Liberal Party, facing an election later this year.
Source: Aljazeera
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