Canada could restrict its oil exports to U.S. if Trump trade war escalates

Rail cars wait for pickup in Winnipeg on March 23, 2014. (John Woods / The Canadian Press)

HOUSTON — Canada could impose non-tariff measures such as restricting its oil exports to the United States or levying export duties on products if a trade dispute with the U.S. escalates further, Canada’s energy minister Jonathan Wilkinson said on Tuesday.

“When we are talking about non-tariff retaliation, it could be about restricting supply, it could be putting our own export duties on products. It could be energy and minerals, it could be broader than that,” Wilkinson said in an interview with Reuters.

He also raised the possibility of using non-tariff measures on critical minerals, which could force the U.S. to rely even more heavily on China.

“Everything is on the table,” he said.

Canada is the top supplier of imported oil to the United States, providing around four million barrels per day mainly to refineries in the Midwest that are largely engineered to run its grades.

Any attempts to restrict exports would face resistance from the province of Alberta, where most of Canada’s oil is produced.

“It’s not on the table. Zero,” said Alberta Premier Danielle Smith on the sidelines of the CERAWeek conference in Houston, Texas, on Wednesday.

“Alberta owns the oil and gas and the bulk of it is coming into the United States. We would never do that to our friends and allies,” she said.

“The temperature has come down a bit, it has de-escalated,” Smith added, referring to the trade war.

U.S. President Donald Trump’s increased tariffs on steel and aluminum imports took effect on Wednesday, rising to 25 per cent as exemptions ended. Canada announced 25 per cent retaliatory tariffs on those metals along with computers, sports equipment and other products worth US$20 billion in total.

Canada has already imposed tariffs worth a similar amount on U.S. goods in response to broader tariffs by Trump.

Any restrictions on Canada’s oil exports to the United States would hurt Canadian producers as Canada is limited in its options to send oil to other markets.

“By and large, you couldn’t displace the four million barrels that we send to the United States in pipelines, but I would say it works on the other side of the bucket too,” Wilkinson said, citing some additional capacity on the Trans Mountain pipeline and rail as alternatives to move some Canadian oil.

“I actually think the oil coming down here (to the United States) is pretty sticky and I don’t think it’s displaceable and in that regard I don’t think the threat to Canada’s producers in the oil sector is as significant as perhaps in other sectors,” he added.

Restricting oil exports to the United States would be “an unwise move,” said Greg Ebel, CEO of Canadian pipeline operator Enbridge.

Wilkinson told Reuters that Canada is considering imposing tariffs on U.S. ethanol as part of a second tranche of trade penalties if Trump continues to escalate the trade war.

U.S. ethanol, a crucial trade product for U.S. farmers, is “absolutely on the list of things” that could be included if Trump, for example, moves forward with plans to impose 25 per cent tariffs on Canadian goods in April, Wilkinson said.

U.S. ethanol exports to Canada hit record highs in recent months to help Canada meet its clean fuel program. It is cheaper than Canadian ethanol, Wilkinson said, due to subsidies in the U.S. Renewable Fuel Standard.

U.S. farmers sent a record 1.54 million gallons of ethanol to Canada in September of last year, roughly double the figure three years prior, according to the U.S. Energy Information Administration.

Article written by Jarrett Renshaw and Arathy Somasekhar, Reuters

(Reporting by Jarrett Renshaw and Arathy Somasekhar in Houston; Editing by Nia Williams and Lincoln Feast)