NEW YORK — The United States has become increasingly dependent on crude oil imported from Canada, with over half of its crude oil now sourced from its northern neighbor—a significant rise from 33% in 2013. This shift can be attributed to a surge in oil production from Canada’s western provinces and enhancements in pipeline infrastructure facilitating this trade. Additionally, around 10% of U.S. oil imports come from Mexico.
Concerns have arisen with President-elect Donald Trump’s proposition of potentially imposing tariffs, which could reach 25%, on imports from both Canada and Mexico. Such tariffs could lead to escalating energy prices, affecting the entire U.S. economy and further driving up the costs of gasoline and other petroleum products, which could reignite inflation.
According to a report from UBS Financial Services, led by Chief Investment Officer Solita Marcelli, all three North American countries remain economically intertwined. Hefty tariffs on vital U.S. imports like crude oil or softwood lumber could exacerbate inflation for U.S. consumers.
In response to the looming threat of tariffs, Canadian officials are evaluating their options. The Premier of Ontario, which is the most populated province in Canada, has hinted at potentially imposing restrictions on imports of American-made alcoholic beverages and limited energy exports. Conversely, the leader of Alberta, a province rich in oil resources, has dismissed the possibility of halting oil exports and expressed hope for a resolution.
Canada stands as the United States’ largest trading partner, largely due to its proximity. Nearly all Canadian oil exports are directed towards the U.S. Despite a substantial increase in domestic oil production over the past decade that has made the U.S. the world’s leading crude oil producer and a net exporter, the country still relies heavily on imported oil to satisfy demand.
The U.S. primarily produces light, sweet crude oil, which is simpler to refine compared to the heavier crude that Canada typically delivers. Historically, U.S. refining infrastructure has been adapted to handle heavier crude imports, making this type of oil relatively cheaper to acquire due to its challenging refining process.
Throughout 2024, oil prices have remained relatively steady, largely due to the OPEC cartel’s decision to limit production in light of weaker global demand. Consequently, the prices of energy commodities have generally declined, easing inflationary pressures. According to the latest consumer price report from the U.S. government, fuel oil costs dropped by 19.5% in November compared to the previous year, contributing to an overall 8.5% decrease in energy commodity prices. Gasoline prices have also experienced a downturn from the previous year.
Implementing tariffs on energy could result in higher costs for consumers through increased prices on products deriving from refined oil. The most immediate effect would likely be seen at the gas station, as elevated gasoline prices often lead to broader inflationary trends.
