Negotiations between the United States and Canada collapsed over the weekend, prompting Washington to impose tariffs on a broad range of Canadian goods, including furniture, dairy products, electrical equipment, and plywood.

However, this tariff list notably excludes one of the most critical commodities in the bilateral trade relationship: crude oil.

The United States stands as the largest export market for Canadian oil. In 2025, Canada directed 90% of its crude exports, valued at approximately 126 billion Canadian dollars, to the U.S., out of a total export value of 140 billion Canadian dollars. This dependence is mutual: last year, roughly 63% of U.S. crude imports originated from Canada.

For decades, the North American petroleum industry has been deeply integrated, with particularly strong ties between Alberta's oil fields and U.S. refineries.

Alberta holds vast reserves of bitumen, a heavy form of oil mixed with sand, clay, and water, embedded in its oil sands deposits. As Canada developed this resource, numerous refineries in the U.S. Midwest invested billions of dollars to expand their facilities to process heavy crude. Cross-border pipeline projects were subsequently built, enabling a steady flow of Alberta's crude supply into the United States.

Refineries along the Gulf Coast, originally constructed and expanded in the 1980s to handle heavy crude from Venezuela and Mexico, have also proven adaptable for processing Alberta's heavy oil as Canadian supply increased.

This refining network creates a unique mismatch with domestic U.S. crude production.

The shale revolution has made the U.S. the world's largest crude producer, but its domestic output is mostly light, sweet crude. In contrast, many U.S. refineries are configured to profitably process heavy crude. The result is a situation where the U.S. exports significant volumes of its own light crude while still importing millions of barrels of Canadian heavy crude daily.

The latest U.S. tariffs do not include oil, and Ottawa has so far refrained from publicly threatening to cut off petroleum exports as retaliation. This reveals the core dilemma for both nations: the U.S. would struggle to find an alternative source to replace Canadian crude, while Canada would find it equally challenging to secure a buyer as substantial as the U.S.

This mutual dependency means that dragging oil into the trade conflict would carry steep costs for both countries.

Canadian energy is not entirely insulated from U.S. tariffs. Since March 2025, Canadian energy exports have faced a 10% tariff, though some Canadian crude qualifies for an exemption under preferential terms of the USMCA agreement. Subsequent rounds of tariffs, including the latest 50% levy, have consistently excluded energy trade.

If Washington were to impose new tariffs on Canadian crude, U.S. refiners acting as importers would bear the tax burden, though the costs would likely be shared across multiple parties. Refiners might pressure Canadian producers to lower purchase prices, widening the discount on Canadian crude. Simultaneously, higher feedstock costs would squeeze U.S. refining margins, ultimately driving up prices for finished products like gasoline and diesel.

On the Canadian side, redirecting crude exports to other markets faces significant practical hurdles. The Trans Mountain Pipeline expansion has allowed Alberta producers to reach overseas buyers via Canada's Pacific coast, but its daily capacity of roughly 890,000 barrels pales in comparison to the 3.9 million barrels Canada shipped to the U.S. each day last year.

President Trump posted on Truth Social on Monday: "Without the U.S., Canada cannot survive... Keep in mind that a large portion of Canada's electricity, oil, and natural gas shipments must transit through the U.S. These people need to be kept in line, or Canada will face far more severe consequences!"

Part of the President's remarks point to the fact that some Canadian energy transportation between provinces relies on U.S. infrastructure. For instance, Enbridge's Line 5 pipeline carries western Canadian crude through Wisconsin and Michigan before returning to Canada to supply refineries in Ontario, with some volumes continuing on to Quebec. This critical transport artery gives the U.S. leverage over Canada.

In summary, the tightly woven energy ties between the two nations mean that while oil is a powerful tool for Ottawa, wielding it could backfire. If Canada were to impose an export tax or restrictions, it would certainly raise costs for U.S. refiners, particularly in the Midwest, but it would also leave Canadian producers scrambling to find new buyers, ultimately depressing their real sales revenue from crude.