Potential Tariff Impacts on Oil & Gas Under the Trump Administration

As the Trump administration prepares to take office, its potential trade policies, particularly the imposition of tariffs, are drawing attention across industries. In the energy sector, these policies could have far-reaching implications for crude oil imports, renewable energy development, and bulk fuel infrastructure. With energy trade deeply integrated into the global economy, stakeholders are evaluating how tariffs might reshape supply chains, pricing, and market stability. We are breaking down tariff impacts into three classifications: low impact, medium impact, and high impact, based on the expected disruption to trade and industry operations.

Low Impact

1. U.S.-Canada Trade Relations

In 2023, Canada exported $177.19 billion in energy products to the U.S., with crude oil comprising over $110 billion. Canadian crude, which is priced lower than other sources, makes up more than 20% of U.S. refinery inputs, providing an advantage to Midwest refiners that rely on heavier, more affordable oil. If tariffs are imposed on Canadian crude, it could lead to higher fuel costs in the Midwest by increasing prices or causing supply disruptions. In 2024, the U.S. imported 5.2 Mbpd of crude and petroleum products from Canada and Mexico, with Canada supplying more than 4 Mbpd.

The U.S. and Canada share a highly interdependent energy relationship, with Canada being the largest supplier of crude oil to the U.S. and a key partner in energy trade. Given the mutual reliance, any tariffs imposed on Canadian energy products are likely to have minimal disruption. Canada depends heavily on the U.S. market, and conversely, the U.S. relies on Canadian imports to maintain supply stability. Both nations are incentivized to avoid trade barriers that could harm this balance, making high tariffs unlikely.

Alberta Premier Danielle Smith has warned that Canadians should brace for U.S. tariffs once Trump assumes the presidency. Smith met with Trump at his Mar-a-Lago resort and indicated that there are no signs Trump will back down from his plan to impose a 25% tariff on Canadian goods. Prime Minister Justin Trudeau has promised to retaliate with counter-tariffs if this occurs. Given Canada’s reliance on U.S. crude exports, these tariffs could create economic turbulence, especially in the oil industry. Canadian trade associations have already formed a working group to mitigate the potential impacts of such tariffs.

2. Tariffs on Renewable Fuels from Partner Countries

Renewable fuels such as renewable diesel and biodiesel are largely produced domestically, reducing the reliance on imports. While some inputs like palm oil for biodiesel may be imported, most of these imports come from friendly trade partners, limiting the potential for disruption. Any tariffs would likely lead to slight cost increases but not enough to severely impact supply or pricing.

Medium Impact

1. Tariffs on Equipment and Technology

Tariffs on materials and equipment used in the production and transportation of crude oil, bulk fuel, and renewable energy could have moderate effects. For example, steel and aluminum tariffs could increase costs for pipeline construction, storage tanks, and transportation infrastructure. These added costs could trickle down to consumers but are unlikely to cause widespread market disruptions.

2. Tariffs on Biofuel Feedstocks

While most biofuel feedstocks are domestically sourced, some specialty feedstocks and additives are imported. Tariffs on these imports could create moderate price increases, particularly for biodiesel and ethanol producers relying on imported inputs, potentially affecting competitiveness and margins. It’s also worth noting that the 45Z producer credit, which is set to replace the biodiesel tax credit, has not yet been finalized, but could have implications for the industry.

High Impact

1. Tariffs on Chinese Goods and Materials

Although energy itself is unlikely to be directly targeted in U.S.-China trade disputes, tariffs on Chinese-manufactured goods used in energy infrastructure could create significant ripple effects. This includes equipment like solar panels, batteries for energy storage, and components for refineries. Such tariffs could slow infrastructure development and raise costs for renewable energy projects, indirectly impacting the broader energy market.

2. Global Oil Market Disruptions

While the U.S. has become a leading exporter of crude oil, tariffs on imports from other regions could lead to retaliatory measures, impacting global supply chains. A trade war could lead to volatility in crude oil prices, impacting refineries and downstream fuel markets, especially for gasoline and diesel. Such instability could disrupt investments and planning in the sector.

Trump’s broader energy policy, which focuses on maximizing U.S. oil production and rolling back regulations, could exacerbate these disruptions. Additionally, Trump’s likely move to withdraw the U.S. from the 2015 Paris Agreement on climate change could have global ramifications, as the U.S. is a major greenhouse gas emitter and an influential force in international climate efforts. Expanding oil and gas drilling on federal lands and waters, a priority for Trump, could further alter global oil dynamics.

The potential impacts of tariffs under the incoming Trump administration will vary across the energy sector. While trade with Canada is unlikely to face significant disruptions due to the deeply integrated energy relationship, tariffs targeting materials, equipment, and global supply chains could create medium to high-level impacts. The most significant risks lie in broader trade disputes, particularly with China, though these are expected to affect non-energy sectors more directly.