Alberta oil industry, experts react to threat of 10% tariff on Canadian oil

Alberta oilpatch professionals and experts say U.S. President Donald Trump's stated intention to impose a 10 per cent tariff on oil from Canada does not bode well for the industry and will likely hurt American consumers, although the situation could be much worse.

Trump said Friday the levy on oil would "probably" be set at 10 per cent as opposed to the 25 per cent tariffs on other goods, but it was unclear whether the lower rate would apply from the start.

Canada is the Americans' No. 1 source of oil imports. Sixty per cent of U.S. crude oil imports were sourced from Canada in 2022, while Mexico was the U.S.'s next-most valuable supplier, accounting for just 10 per cent of those imports by comparison.

Premier Danielle Smith's office issued a statement Friday about the possibility of a 10 per cent tariff on Canadian oil.

"The premier is waiting, along with everyone else, to see the details of the U.S. tariffs announced today. She will have more to say as soon as we see those details," the statement reads.

"The premier has been clear from the start that any tariffs imposed by the U.S. on Canadian goods will hurt American and Canadian consumers, workers and businesses. That view has not changed."

Richard Masson, executive fellow at the University of Calgary's School of Public Policy and former CEO of the Alberta Petroleum Marketing Commission, called the possibility of a 10 per cent tariff on oil a small victory when compared with 25 per cent.

"Clearly it's not going to be helpful. We have an integrated energy system and the U.S. relies on us, and putting a tariff on the oil that they're going to be importing isn't going to be good for them and it probably won't be good for us," the industry veteran said.

He adds the devil is in the details on possible levies and there are still many uncertainties surrounding how these tariffs could play out and who might bear the brunt of them. Depending on how things go, either country could wind up being negatively impacted.

"In my mind, 10 per cent, it's more likely that the refiners are going to bear that cost than the producers. If it was 25 per cent, I think there might be a big drop in demand for our our oil over the course of two or three months and that would push it back on us more. But if there isn't much of a drop, then [the U.S. is] going to have to bear it as the refiners," Masson said.

Deborah Yedlin, president and CEO of the Calgary Chamber of Commerce, says the threat of tariffs carry an incredible amount of uncertainty and could have far-reaching impacts in the city's business community.

"The level of uncertainty and anxiety that we hear from people is not unlike what was felt during the 2008 financial crisis," she said. "Nobody knows exactly what's going to happen because we don't have all the information. And until we actually have all the information, we actually don't know exactly what the what the impact is going to be."

Yedlin says applying tariffs to Canadian oil will likely impact the price of gasoline in the U.S. and questioned Trump's goals.

"Is it really about border security … or is this really about punishing the Canadian economy as well as the American economy?" she said. "It is an inflationary move, and it's going to both affect businesses in Canada and the United States."

Paul Colborne, president and CEO of Surge Energy, an oil-focused exploration and production company based in Calgary, says from the perspective of an oil producer, a 10 per cent levy on Canadian oil is a reasonable, good outcome for Alberta's industry as opposed to a 25 per cent tariff.

He adds Surge prepared for the possibility of tariffs accordingly, and 10 per cent will not significantly impact the company.

"In our case, it's business as usual for Surge because we hedged it, and whatever chunk we didn't hedge is going to get 10 per cent higher," he said.

Some Canadian oil producers have been trying to protect themselves from the potential of tariff by hedging their risks, which involves signing contracts to lock in the price of oil that will be sold over the months or year ahead.

"So we won't really change our corporate estimates for this year, our capital spending, or anything. I think that's largely true for any oil producer."

He credits the probable 10 per cent tariff on Canada's oil as a result of the premier's diplomatic efforts in the United States. 

"I think Danielle Smith was brilliant to go down and see [Trump and] reaffirm that we're your trading partners, we're 120-year trading partners," Colborne said. "She was doing what I think the prime minister should have done."

Adam Legge, president of the Business Council of Alberta, says if the U.S. president moves ahead with implementing tariffs, he will be disappointed.

He says Canada and the U.S. have a strong, long-standing trade relationship and that applying tariffs on Canadian goods would undermine that.

"The fact that he's penalizing Canada, Mexico more than he is China, I think, frankly, is offensive to the relationship," said Legge, who was at the Canadian Embassy in Washington, D.C., for the inauguration.

What are the next steps?

Legge says that in the meantime, Canada should continue its diplomatic efforts to address Trump's concerns about the border and Canada's spending on national defence, among others.

He says if addressing those concerns don't deter the implementation of tariffs, Alberta may want to consider "surgical" and "strategic" measures in response, so long as they don't negatively impact Canadian consumers, companies and long-term economic prospects.

"[We should be] trying to convince the Americans to abandon this frankly terrible trade policy idea … and convince the president that this is just a lose-lose game for all parties," Legge said.

"[We need] to demonstrate that we can give [Trump] a win. That's what he wants.… If we can try and kill him with kindness and and win him over with some of those efforts, then maybe that can go a ways to addressing some of these these tariffs."

Former CEO of the Alberta Petroleum Marketing Commission Richard Masson says he anticipates oil producers will continue trying to dissuade the U.S., to reverse course on its intention to bring in tariffs. He says trying to convince Trump not to go ahead with them remains the best option.

"I think people are going to be pressing the case hard over the next 18 days to say to the president, 'This is still going to hurt your consumers … increasing the price of gasoline. You're not going to have a bunch of happy consumers in the swing states that just voted for you. And is that really what you want?'" he said.

Colborne says Canada's oil industry should be looking at expanding which countries it can sell to. He calls for the country to explore selling to European markets as well as stressed the importance of pipelines to places other than the United States.

"I think finishing some of the projects that were on the books when [prime minister] Stephen Harper left office would have been a good thing. So, hopefully the other people in Canada see how important the oil industry and opening up markets to places other than the U.S. is a really good thing."