In US-Canada trade spat, Washington left out a key lever: Canadian oil

In a US-Canada trade dispute, Washington unexpectedly failed to include a crucial component: Canadian oil. The United States imposed a 50% tariff on numerous Canadian goods such as furniture, dairy, electrical products, and plywood. However, the tariffs deliberately excluded crude oil, which is the most vital product crossing the border between the two nations.

In 2025, the United States was the largest purchaser of Canadian crude, accounting for 90% of Canada's crude exports, worth approximately CA$140 billion. Canada, in turn, supplied roughly 63% of all US crude imports. The integration of the North American oil industry, particularly between Alberta's oil fields and US refineries, is a result of decades of interdependence.

The US and Canada share a unique mismatch in their oil production since the shale boom has made the US the world's largest crude producer, yet many US refineries are designed to process heavier crude. This mismatch means that the US cannot easily replace the Canadian barrel, and Canada cannot replace the American buyer. The decision to exclude oil from the new US tariffs, while Canada has not publicly threatened retaliation, highlights a central dilemma for both countries.

Bringing oil into the trade fight could inflict significant costs on both sides. While Canadian energy is partially exempt from US tariffs, energy exports have faced a 10% tariff since March 2025. The imposition of additional tariffs on Canadian crude would force US refiners to pay the levy, potentially leading to lower prices for Canadian crude and increased costs for US refiners.

Canada, on the other hand, has limited alternatives to selling its oil. The expanded Trans Mountain pipeline allows for access to overseas markets, but its capacity is far smaller than the vast amount of Canadian crude shipped to the US each day. The close energy ties between the US and Canada make oil a potent but potentially self-defeating weapon for both nations.