U.S.-Canada energy ties face strain as Trump administration protectionist policies collide with market reality
By Rashid Husain Syed
Proposed U.S. tariffs on Canadian crude—part of Donald Trump’s push for protectionist trade policies—are raising alarm on both sides of the border. Set for March 4, the levy aims to address trade imbalances and reduce U.S. reliance on foreign oil.
However, the threat of tariffs has sparked fears of disruption in the deeply integrated North American energy market, where cross-border pipelines supply U.S. refineries with essential heavy crude from Canada. Although it remains unclear if the tariffs will take effect, Trump’s resolve appears firm.
The stakes are high. U.S. refineries, particularly those in the Midwest, depend on Canadian heavy crude for gasoline and diesel. As Rebecca F. Elliott of The New York Times wrote, they face two costly options: “either to pay more for the crude that it transforms into gasoline and diesel or slash production.”
This dependency exists because U.S. refineries were designed for heavier crude blends, which are scarce domestically but abundant in Canada.
Despite contributing more than $75 million to Trump’s campaign, U.S. oil and gas leaders are urging him to exempt Canadian crude. They warn that higher costs could drive up fuel prices and break his campaign pledge to lower energy bills.
Under pressure, Trump reduced the proposed tariff from 25 per cent to 10 per cent. Yet, as Chet Thompson, CEO of the American Fuel and Petrochemical Manufacturers, explains: “It’s not as simple as switching things out … Companies have little reason to spend billions reconfiguring systems for fleeting trade policies.”
But the impact extends far beyond North America. As the U.S. squeezes Canadian oil, its sanctions on Russia and Iran are tightening global supply chains.
The Biden administration’s sanctions on Russian oil—imposed in response to Russia’s invasion of Ukraine—have upended global trade routes, forcing major buyers to scramble for alternative suppliers. Before the sanctions, Russia was a key supplier of crude oil to Asia, particularly China and India. However, supply routes to Asia have been severely disrupted, with many shipping companies and financial institutions avoiding sanctioned Russian cargoes.
Charles Kennedy of Oilprice.com reports: “Trade in Russian crude loading for Asia in March dropped as tanker rates soared and shippers scrambled for non-sanctioned vessels.” Asian refiners, including those in China and India, are now seeking alternative supplies from the Middle East and Africa, driving up tanker rates and regional crude prices.
Compounding the supply squeeze, U.S. pressure on Iran has further tightened global markets. Stricter enforcement of sanctions on Iran’s oil exports has reduced its shipments, particularly to China, its largest buyer. With two major producers—Russia and Iran—effectively sidelined from much of the global market, competition for available crude has intensified, pushing prices higher and increasing volatility.
According to Goldman Sachs: “Tighter sanctions enforcement could cut Iran’s output by one million barrels per day and push Brent to the high $80s a barrel by May.” The potential for sudden supply losses is rattling global markets.
A resolution to the Russia-Ukraine war could shift the supply landscape dramatically. If sanctions on Russian oil lift, it could flood markets, upend forecasts, and push prices downward.
Trump’s recent outreach to Vladimir Putin and Volodymyr Zelenskyy underscores the unpredictable nature of energy markets, where geopolitical shifts can rapidly upend forecasts.
This turmoil reminds us that global energy markets are driven as much by politics as by supply and demand.
In the end, one truth remains: in energy markets, uncertainty is the greatest enemy of stability. And today, uncertainty is in abundant supply.
Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
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