Global oil prices are poised for volatility as President Donald Trump's administration threatens to implement significant tariffs on crude oil imports from Canada and Mexico. These tariffs, set at 25 percent, could create financial turmoil across North American markets and force up gas prices for American consumers, drawing intense scrutiny from economists and investors alike.
The uncertainty surrounding these tariffs has sent shockwaves through the oil market, with experts estimating potential gas price increases of 40 to 70 cents per gallon. This assessment stems from the fact these two nations account for approximately 70 percent of the U.S. crude oil imports, which are integral to the gasoline supply chain, as noted by Timothy Fitzgerald, a professor of business economics at the University of Tennessee.
Beneath this looming threat, the current price of gasoline, averaging $3.11 per gallon, could soon see drastic increases as seasonal demand for warmer weather blends is anticipated to push prices higher. Experts estimate prices could rise to $4.11 if both supply chain constraints and increasing tariffs come to fruition.
The dynamic is complex, with some industry insiders speculating these tariffs are merely tools of negotiation rather than firm policy changes. Analysts from the New York Times have suggested Trump’s threats might be aimed at pressuring other nations rather than signaling imminent economic decisions.
Meanwhile, oil prices already saw upticks last week, with West Texas Intermediate (WTI) reaching $72.83 per barrel, marking a notable increase as investors remain concerned about oil demand and inflationary pressures potentially complicate monetary policy decisions from the Federal Reserve.
Trump has previously reiterated his tariff stance, indicating the U.S. would be finalizing decisions on energy tariff implementations as recently as Thursday. Should these tariffs be enacted, they would exacerbate the price differential between U.S. benchmark oil and Canadian oil, as detailed by Richard Masson, executive fellow with the University of Calgary.
The price disparity, which currently exists due to the differing qualities of oil, would be likely worsen should these tariffs apply, hurting revenues for Canadian producers reliant on exports to the U.S. Alberta, which ships approximately 87 percent of its crude oil to the U.S., stands to suffer substantially. Charles St-Arnaud, chief economist at Alberta Central, characterized these planned tariffs as nothing short of detrimental to both Canada’s economy and the energy sector.
Notably, Alberta's provincial budget is heavily reliant on oil revenues, and these potential tariffs could have cascading effects, resulting in decreased provincial revenue and even impacting the Canadian dollar's exchange rate. Masson emphasized the negative fiscal impact, stating, "There's no way to look at [tariffs] in a positive way, it's going to be negative for Canada as a whole."
Despite the risks, exporting Canadian crude has hit record levels recently, largely due to the completion of infrastructure like the Trans Mountain pipeline. This achievement suggests the U.S. may depend more heavily on Canadian imports to meet its energy needs, complicatively positioning future negotiations.
Market insiders are hedging their bets as they await the verdict on tariffs and its broader ramifications on the international oil market and American consumers. Duygu Alhan from the Anadolu Agency highlighted the jarring reality of potential economic factors at play due to these tariffs. “If inflation rises again, the Fed may pause interest rate cuts, limiting upward price movements,” she noted, showcasing the interconnected nature of energy and economic policy.
Consideration of international dynamics also weighs heavily on the discourse. Ongoing geopolitical tensions, particularly U.S. sanctions against Russian oil, have already tightened global supply chains. Any tariffs implemented could drive ill effects through the price mechanisms, possibly curtailing U.S. economic growth as increased fuel costs propagate across industries.
With February 1 marking the anticipated deadline for Trump’s tariff decisions, U.S. consumers and Canadian producers alike are bracing for possible impacts to their financial standing. The overarching message among stakeholders—and one echoed by many analysts—is clear: the situation requires careful navigation to avoid steep economic fallout.
One international oil analyst succinctly summed it up, stating, “It feels like all the clients we speak to on the U.S. side, they think this is all a negotiation process. Canadians, on the other hand, I think it’s a wake-up call to say shipping crude to the U.S. is not risk-free anymore.”