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TOP STORY
Against the threat of crushing tariffs from the incoming Donald Trump administration, Ottawa is now entertaining the “nuclear option”: Retaliating with a total shutdown of electricity and oil exports to the United States.
It’s the single most damaging thing that Canada could do to the U.S. economy. Without 600 million litres of Canadian oil crossing the border each day, whole regions would be plunged into devastating fuel shortages.
But it would come at a catastrophic price for Canada, with potentially irreversible consequences for the country’s energy sector.
“One thing that would happen is me curling up in a ball crying at the stupidity of all this,” said University of Calgary economist Trevor Tombe in response to a question about what a shutdown of Canadian oil exports would look like.
Tombe predicted that after a brief period of chaos, the Americans would pick up the slack by importing from other countries and tapping into their strategic oil reserve. They would then retool their entire energy system to be less reliant on Canadian oil.
The net result: “Slightly higher” prices in the U.S., “much lower” prices for Canadian oil, with noticeable impacts to Canadian GDP “for quite some time.”
“Of course, this has never happened before, so it’s really hard to say,” said Tombe.
At a first ministers’ conference this week, the notion of shutting off energy wasn’t explicitly mentioned in a joint statement signed by Prime Minister Justin Trudeau and nine of his provincial counterparts. Rather, it promised only “a full range of measures to ensure a robust response to possible U.S. tariffs.”
Nevertheless, Alberta Premier Danielle Smith refused to sign the document because Ottawa had not ruled out an energy shutdown. “Federal government officials continue to publicly and privately float the idea of cutting off energy supply to the U.S.,” she wrote in a statement, adding, “until these threats cease, Alberta will not be able to fully support the federal government’s plan.”
On electricity, at least, U.S. consumers probably wouldn’t notice a sudden loss of Canadian supply, aside from a slight increase to their monthly power bill.
Thousands of American homes keep the lights on thanks to Canadian electricity, but it wouldn’t be all that hard for the U.S. energy grid to pick up the slack in the event of a shutdown.
New York State is one of the largest importers of Canadian electricity, having purchased 5.3 terawatt hours of Ontario power in 2024. That’s enough to charge 50 million Teslas, but it represents just 3.5 per cent of the state’s total annual electricity consumption.
It’s easier for the Americans to write off Canadian electricity because they’ve been buying less and less of it each year. Plummeting natural gas prices have made U.S. electricity cheaper at the same time that reduced hydro capacity has reduced the amount of Canadian power available for export.
In 2022, Canada sold $5.8 billion of electricity to the United States. Last year, that was halved to $2.8 billion.
“Electricity exchanges across the United States and Canada — historically each other’s largest electricity trading partners — remain relatively small, representing less than 1% of their respective total generation,” reads a November write-up by the U.S. Energy Information Administration.
It’s an entirely different story with oil, where U.S. dependence on Canadian crude has been increasing dramatically in recent years.
In 2013, Canada represented just a third of U.S. oil imports. Now, it’s up to 66 per cent.
As of 2023, the United States imports about 20.6 million barrels of oil a day. On some days, four million of those barrels were coming from Canada, which means that there are now times when one in every five gallons of gasoline burned in the United States started out in Northern Alberta.
What’s more, whole regions of the U.S. now derive their fuel from refineries that cannot process anything except Canadian oil.
Western Canadian Select — Canada’s main petroleum blend — is thicker and more filled with impurities than the average crude oil. As such, turning it into gasoline and other products requires dedicated facilities.
But it’s also one of the cheapest crude oils on earth, which is why refiners from Chicago to the Gulf of Mexico have made the decision to tool up their facilities to deal with the more finicky Canadian oil.
If Canada shuts off the taps, these refineries cannot seamlessly switch to alternatives, be it U.S.-produced oil or imports from Norway or the Middle East.
And even if they could retool, many of them would be immediately sealed off from easy sources of supply.
Canadian oil primarily flows into the United States via a vast network of pipelines all originating in Alberta but stretching everywhere from Anacortes, Washington, to Portland, Maine, to Houston, Texas.
If these pipelines dry up, it’s not an easy thing to suddenly plug them into alternative sources of oil. In extreme cases, refineries would be forced to subsist on whatever they could scrounge from rail shipments or even trucks.
The U.S. divides its oil sector into five regions known as PADDs (Petroleum Administration for Defense Districts). It’s in PADD 2 — a region covering 15 midwestern states — that a Canadian oil shutdown would be most felt.
PADD 2 now derives 100 per cent of its oil imports from Canada, and a disproportionate number of its 22 refineries are designed to accept the “heavy oil and diluted bitumen crude oil” that is unique to Canada.
At any one time, as much as two thirds of the gasoline consumed in the likes of Chicago, Detroit and Louisville began as Alberta bitumen.
If the Canadian oil stops, the PADD 2 region loses all of that almost instantly.
“Either people cut back to using one quarter of the gas they used to, or they’re trucking in gasoline and diesel from the rest of the U.S.,” said Kent Fellows, an energy economist, also at the University of Calgary.
That can be done, but not without shortages and price increases, all of which could last for months or years until pipelines could be reversed and insfrastructure reoriented away from Canadian sources.
“No doubt they can and do build pipelines faster than we do (i.e., less than a decade), but it still takes time to get all this stuff organized,” said Fellows.
But even if an oil shutdown could cause immediate harm to the regions of the United States that have gotten accustomed to buying Canadian oil, the embargo would almost certainly deal its harshest blow to Canada itself.
Canada stands alone among major oil producers in the fact that its exports are sent almost entirely to one customer.
As of this writing, 97 per cent of Canadian oil exports go to the United States, and given that Canada only has a single export pipeline that reaches the sea (as well as some offshore oil platforms in Newfoundland that can fill up tankers), the country has little ability to change that.
If the Americans are shocked into using non-Canadian sources of oil, there’s a strong possibility they may never come back.
At least, that’s what Alberta is fearing, because they don’t have anywhere else to sell it.
In her rejection of the so-called “Team Canada” approach to retaliating against U.S. tariffs, Smith reminded the rest of Canada that they had helped to systematically block construction of the various export pipelines that could have given the country more leverage over its energy exports.
Smith urged Canadians to “use this tariff threat as an opportunity to correct the misguided direction of this country … instead of effectively land locking them and keeping us fully reliant on one primary customer.”
IN OTHER NEWS
As Mark Carney embarks on a bid for Liberal leader that may very well end in immediate, humiliating failure, his campaign has been greeted very differently by two prominent non-Canadian veterans of political failure:
- Michael Bloomberg — the former New York City mayor who spent nearly $1 billion on a 2020 U.S. presidential bid that fell apart in 100 days — said in a social media post he was “excited to see Mark Carney running for Canadian Prime Minister.” “Mark is a leader who pairs vision with action and has a strong grasp of the economic challenges families and communities face today,” wrote Bloomberg.
- Liz Truss — the U.K. prime minister who served a mere 50 days before being turfed out by her own caucus — reacted to the news with a call of “Resist, Canadians. Resist.” Truss said Carney’s Bank of England term was marked by “printing too much money” and “promoting disastrous Net Zero policies,” and that he was now going to “inflict these terrible ideas on Canada.”
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