The United States has increasingly turned to Canadian crude oil to meet its domestic demand, with over 50% of crude oil imports coming from Canada, up from 33% in 2013. This shift is attributed to the rise in production from Canada's western provinces and the expansion of pipeline capacity to the U.S. border. Additionally, approximately 10% of oil imports to the U.S. come from Mexico.
President-elect Donald Trump's threat of imposing tariffs on products from Canada and Mexico has raised concerns about potential strains on the U.S.-Canadian energy relationship. The proposed tariffs, which could reach up to 25%, have sparked worries about increased energy costs affecting the entire U.S. economy, potentially leading to higher prices for gasoline and other petroleum products, thus reigniting inflation concerns.
A report by UBS Financial Services highlighted the economic interdependence of the U.S., Canada, and Mexico, warning that significant taxes on key U.S. imports like crude oil could exacerbate consumer inflation. Canadian officials are evaluating potential responses to Trump's tariff threats, with discussions ranging from trade restrictions on American-made goods to maintaining energy exports.
Despite the U.S.'s own oil boom in recent years, Canada remains the primary source of oil imports due to the different types of crude oil each country produces. The U.S. mainly produces light, sweet crude, while Canada focuses on heavier crude varieties. The U.S. refining infrastructure is better suited for heavier crude, which is cheaper to purchase but more challenging to refine.
Oil prices have remained relatively stable in 2024, with the OPEC cartel limiting production in response to weaker global demand. Energy commodity prices have seen a general decline, with fuel oil costs dropping by 19.5% in November compared to the previous year. Gasoline prices have also decreased over the same period.
If tariffs are imposed on energy imports, consumers are likely to feel the impact through higher prices for refined products. The most immediate effect would be seen at the gas pump, potentially leading to broader inflationary pressures in the economy.
