Over the past few days, the U.S.-Canada-Mexico tariff situation has undergone dramatic reversals. President Donald Trump initially announced a 25% tariff on Canada and Mexico, then suspended those tariffs for 30 days to allow further negotiations. In addition, the U.S. administration said on Saturday it plans to impose a 10% tariff on Canadian energy, sparking broad market concern.
Speaking at the World Economic Forum, Trump claimed the U.S. does not need Canadian crude or other commodities, asserting that “without massive subsidies,” Canada would not remain a viable country. However, experts say this view does not match reality.
Richard Masson of the University of Calgary’s School of Public Policy noted that the U.S. imports about 4 million barrels of Canadian crude oil per day, of which more than 2 million barrels comprise diluted bitumen that goes to U.S. refineries specifically designed to process it in Minneapolis, Chicago, and Wood River. Many analysts believe such refineries cannot easily switch to other grades of oil, so the U.S. remains reliant on Canadian supply.
Industry watchers like Standard Chartered have also warned that should tariffs be enforced, Midwest refineries will be forced to cut production and bear higher costs, which would inevitably be passed on to consumers.
Statistics show that in the first ten months of 2024, the U.S. imported around 6.6 million barrels of crude per day, 4 million of which were heavy crude. Canada supplied 75% of these heavy imports, and in the Midwest specifically, that figure reached 99.89%. Over the past decade, Canadian heavy crude has steadily replaced supplies from Mexico, Venezuela, and Colombia. According to the U.S. Energy Information Administration, about 80% of Canada’s crude output goes to U.S. refineries, with imports hitting a record 4.42 million barrels per day in the week ending January 3.
Analysts estimate that a 10% tariff on Canadian crude would push Midwest gasoline prices up by around 10%. Oil Price Information Service analyst Tom Kloza predicts that if refiners fully pass on tariff costs, certain regions in the U.S. could see retail prices climb by as much as $0.35 per gallon.
Amrita Sen, research director at Energy Aspects, believes that, over the long run, Trump’s tariff policies will benefit Asian refiners since higher costs for U.S. refineries weaken their global competitiveness, allowing refiners in Asia to gain market share. “It’s a big loss for U.S. refiners and a potential opportunity for other regions, particularly Asia,” Sen explained.
In response to the uncertainties triggered by tariffs, American Fuel & Petrochemical Manufacturers President and CEO Chet Thompson has called for a rapid resolution of trade disputes with Canada and Mexico so that crude oil, refined fuels, and petrochemicals can be removed from the tariff list, preventing added costs for consumers. American Petroleum Institute President and CEO Mike Sommers similarly reaffirmed that the API will keep working with the Trump administration to uphold energy affordability and protect the U.S. refining sector’s competitiveness.
Although a 10% tariff on Canadian crude alone may not overturn the U.S. refining market, it will raise import costs and place the most immediate strain on refiners in the Midwest and on the West Coast. Canada, meanwhile, may count on the Trans Mountain pipeline expansion to redirect more of its oil to Asia. Under complex global market dynamics, Trump’s pressure could bring unintended consequences, weakening domestic refining capacity while benefiting producers and refiners in other regions.
