Credit: Canada Energy Regulator
The newly-emerged political tension between the two North American neighbours shows no sign of abating. On the contrary, it can only get worse, as the forthcoming general election appears to be defined by a theme related to Canadian sovereignty rather than any other contemporary issue.
The tariff war between the two countries, if fully-blown , will affect the energy prices significantly as the two neighbours are almost joined at the hip, when it comes to the distribution of energy; the systems are integrated in such a way that Canada accounts for about 60% of US crude imports; almost 4 million bpd flow south from Canada and the refineries in the Midwest would starve, if this particular flow is disrupted in the event of being caught in the tariff battle.
Any disruption or extra cost added on political grounds, in this context, will ripple through the energy markets in no time, making repercussions felt way beyond North America.
As for Canada, the energy exports to the US brought in $160 billion in revenue in 2023; it was 21% of what Canada gained from its exports globally. By contrast, by exporting energy resources to Canada, the US just earned mere $23 billion - a bone of contention between the two countries under the New Trump Administration; it was just 4.7% of Canadian total global imports in the same year.
In 2023, meanwhile, electricity imports from the US were valued at $1.6 billion, accounting for 0.2% of all goods imported to Canada from all countries. Electricity exports to the US, meanwhile, during the same period were valued at $4.3 billion, or 0.6% of all goods exported from Canada to all countries. These are the statistics that President Trump got hold of, while accusing Canada of 'ripping off' his country. President Trump has threatened with 10% tariff on energy products and 25% on other goods for Canada and Mexico. He is hellbent on imposing levies on Canadian goods on April 2, as an imposition of levies - or any other thing for that matter - on the very first day of this particular month is highly unlikely to excite anyone on both sides of the border or even beyond them.
The refineries in the Midwest prefer Canadian heavy crude and infrastructure is said to be well suited for the purpose; in addition, the close proximity of the countries has kept the transport costs fairly low, benefiting both countries.
If the trade war escalates, 25% or more tariff on Canadian oil will leave the refineries in the Midwest in a vulnerable position: they might absorb costs to some extent, but the rest will be passed on to customers - hardly an inflation busting move, something that President Trump kept highlighting, time and again during the presidential campaign and won votes; in the worst case scenario, they may even cut down on production.
On the other hand, if Canada hits back by imposing counter tariffs on Canadian oil exports or even restricting the flow of oil, markets will cash in on the trend and exploit the once-in-a-lifetime opportunity to make hefty profits. In addition, the province Ontario in Canada can even cut off electricity to over 1.5 million homes in the US as an effective punitive measure.
Tariff threats and retaliatory measures have already affected crude oil prices, given the energy market's sensitivity to supply uncertainty. The main global benchmarks, WTI and Brent have lost 2-3% of value in 2025 since President Trump's inauguration, reflecting a hit on economic growth.
Furthermore, a strengthened US dollar, a likely consequence of the current situation, will raise costs for international oil buyers. This combination will impede global growth and ultimately reduce long-term crude oil demand.
The impact on prices would vary across the U.S, though. The Midwest, for instance, will face problems due to their proximity to Canadian pipelines and their preference to type of crude that Canada offers. The refineries the Gulf Coast, on the other hand, will be able to source from Mexico or elsewhere while adapting more easily. Moreover, the Northeast, dependent on Canadian refined products from places like Irving Oil’s refinery in New Brunswick, could also face quick price hikes.
Against this background, Mark Carney, the newly-selected Canadian Prime Minister, called a general election in April with sovereignty of Canada at the heart of his election manifesto. Since his appointment as the leader of Canada, Mr Carney made no effort to hide his sentiments and frustration over President Trump's aspiration to make his country become the 51st State of the US. His choice of countries to visit, the UK and France, instead of Canada's immediate neighbour, the US, shows how he feels about the issue.
If Mr Carney is elected as the prime minister at the polls in April, the existing bad blood between President Trump and the former will not play out very well in the presence of looming tariffs on products a country that sells over 80% of its products just across the border - the significance of which is very well known to a trained banker and the former Head of two major Central Banks in the world.
