Tariff threats cast shadow over US reliance on Canada for majority of its oil imports
NEW YORK– The US is increasingly dependent on Canadian crude to meet domestic demand, and that relationship may be under strain the threat of tariffs of newly elected President Donald Trump.
More than 50% of crude oil imported into the U.S. comes from Canada, up from 33% in 2013. The increase follows a jump in production from Canada’s western provinces and growing pipeline capacity to its southern neighbor. Another approximately 10% of imports come from Mexico.
Trump has threatened across-the-board tariffs of up to 25% products from both Canada and Mexico. That has raised concerns about higher energy costs rippling through the entire U.S. economy, making gasoline and other petroleum products more expensive and reigniting inflation.
“All three countries remain highly dependent on each other economically, and heavy taxes on key U.S. imports such as crude oil or softwood lumber threaten to worsen U.S. consumer inflation,” said a report led by Solita Marcelli, Chief Investment Officer of the Americas for UBS Financial Services . .
Canadian officials say they are examining how they would respond if Trump follows through on his threat. The leader of Ontario, Canada’s most populous province, has proposed this blocking the import of American alcohol and restricting energy exports. But the head of oil-rich Alberta has ruled out halting oil exports and hopes to find a solution.
Canada, with its proximity to the US, is too the country’s largest trading partner. Nearly all Canadian oil is exported to the US
Canadian oil makes up the bulk of total U.S. oil imports, despite the country’s own oil boom over the past decade. That boom has made the U.S. the world’s largest producer of crude oil and a net exporter. But a mix of chemicals and infrastructure, along with geography and prices, means the US still needs to import a significant amount of oil to meet demand.
The US mainly produces light, sweet crude oil, which is easier to refine than heavier crude oil, such as the kind Canada mainly produces. But the U.S. refining infrastructure is geared toward heavier crude oil because of its history of importing that type. Heavier crude oil is cheaper to purchase because it is more difficult to refine.
Oil prices have remained largely stable through 2024 and the OPEC cartel has limited production due to weaker global demand. Energy commodities have broadly declined throughout the year, reducing inflation.
Heating oil costs fell 19.5% in November from a year earlier, contributing to an overall 8.5% decline in energy commodity costs, according to the latest U.S. government consumer price report. Gasoline prices have also fallen compared to a year ago.
Energy tariffs would likely trickle down to consumers through products made from oil refining. The most obvious impact will likely occur at the gas pump, and higher gasoline prices tend to fuel broader inflation.
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