Oil producers in Canada and Mexico may face significant financial pressure if U.S. President-elect Donald Trump implements a proposed 25% tariff on crude imports from the two countries, according to traders and analysts. The move could lead to a sharp drop in prices and force these exporters to redirect oil supplies to Asia.
Sources familiar with the plan revealed to Reuters that crude oil would not be exempt from the potential tariff hikes, despite warnings from the U.S. oil industry about potential adverse effects on consumers, businesses, and national security. Canada and Mexico, the top petroleum exporters to the U.S., currently contribute 52% and 11% of its total crude imports, respectively, according to the U.S. Energy Information Administration (EIA).
Impacts on Canadian Oil
Canada’s waterborne crude exports have surged by 65% to approximately 530,000 barrels per day (bpd) in 2024, bolstered by the expansion of the Trans-Mountain pipeline. However, Daan Struyven, co-head of global commodities research at Goldman Sachs, cautioned that Canadian producers might face deeper discounts and revenue losses if export routes to the U.S. are blocked or limited.
Shift to Asian Markets
Analysts predict a significant uptick in oil exports to Asia, particularly China and India, where refineries can handle the heavy, high-sulfur crude produced by Canada and Mexico. Asian refiners have already begun testing Canadian crude grades, and some U.S. refiners are likely to struggle with the tariff’s impact on supply options, given the limited availability of alternative heavy crude sources.
“Either the producer or the refiner will have to absorb the tariffs,” a Singapore-based trader remarked, noting that Canadian producers might need to offer steep discounts to offset long shipping distances.
Limited Appeal in Europe
Unlike Asia, Europe is unlikely to absorb much of the diverted oil. European refiners, particularly in Spain, import modest amounts of Mexican and Canadian crude, with data showing average Mexican exports of 191,000 bpd to Europe in 2024. Energy Aspects analyst Christopher Haines stated that Asian refiners could easily outcompete European buyers for any surplus oil.
Skepticism Over Tariff Implementation
Despite the potential repercussions, some analysts remain doubtful that the tariffs will be enacted, suggesting the proposal might serve as a negotiation tactic. Imposing such tariffs could exacerbate inflation for U.S. consumers and refiners, making the policy politically and economically contentious.
If the tariffs are implemented, the shift in global oil flows could reshape trade dynamics, with Asian markets becoming the key destination for Canadian and Mexican crude.
