President Donald Trump’s decision to implement tariffs on Canada, Mexico and China began a shakeup of the North American energy industry, as producers, transporters and refiners considered the ramifications of a long-term trade war.

The Canadian Association of Petroleum Producers and its member companies “are deeply disappointed in the U.S. administration’s decision to impose across-the-board tariffs on Canadian goods,” Lisa Baiton, president and CEO of CAPP, said in a release. “As Canadians we must now recognize the relationship with our closest friend, ally, and trading partner has fundamentally changed.”

On March 4, Trump implemented a 25% tariff on goods from Mexico and Canada, while adding an additional 10% duty on top of the current tariff for Chinese goods. Canadian crude and gas received a less-punishing tariff of 10%.

Markets had an immediate reaction. Overall, the DOW Jones Industrial Average fell by more than 670 points from the day’s opening when markets closed.

Energy markets had mixed results. Nymex Brent futures hit a six-month low of $69.75/bbl during the day’s trading session. WTI fell by $0.28 to $68.09/bbl.

Analysts said the drivers for the price drop were related both to the tariff decision and OPEC’s announcement that it planned to increase its oil output by 138,000 bbl/d in April, the organization’s first increase since 2022.

Natural gas prices went in the opposite direction, surging to their highest levels since 2022, with Henry Hub front-month futures hitting $4.44/MMBtu during trading. Prices jumped following the announcement from Ontario Premier Doug Ford that the province would place a 25% retaliatory export tax on the electricity it supplies to Minnesota, Michigan and New York.

Analysts have also speculated that if a trade war goes into full effect, the amount of crude produced in the U.S. would fall, meaning associated gas volumes would also fall with it, causing the value of natural gas to rise.

The White House announcement of the tariffs focused on Trump’s demand that Canada and Mexico do more to stop illegal immigration and the flow of illegal drugs into the U.S.

Economic effects of the tariffs were not mentioned.

President Trump promised in November to “sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders. This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” the White House statement said.

Trump has previously said that he sees tariffs as a useful negotiating tool and an overall economic good.

While the U.S. and Canadian governments may be at odds, the two countries’ energy industries are largely intertwined, a fact CAPP acknowledged.

“In this moment, we must act with urgency to focus on the Canadian national interest,” Baiton said. “Without greater global market reach and energy security, Canada has little leverage in our trade relationship with the United States.”

About 90% of Canadian crude flows into the U.S., according to estimates from East Daley Analytics. The amount of flow is unlikely to be changed by a 10% tariff, according to East Daley Analyst Kristy Oleszek.  

Canada’s primary method of crude transport is on U.S.-bound pipelines that feed into refineries in the Midwest. In 2024, the country completed a capacity expansion of the Trans Mountain Pipeline, which delivers crude to the Canadian West Coast. The project was hailed as a way to break Canadian dependency on the U.S. transport and refining system, but most cargoes have so far ended up at U.S. ports to supply Californian refineries, Oleszek said.

Canada, therefore, does not have many options as to where it sends the 4.4 MMbbl/d of crude it currently sends to the U.S. to be refined.

In the U.S., however, refiners have invested heavily to work with Canadian crude. Their northern neighbor accounts for more than a quarter of U.S. refinery supplies of about 16.2 MMbbl/d, according to East Daley.

“Both nations have benefited from this integration,” Oleszek said. “The U.S. creates a willing market for the hard-to-refine heavy oil. Many US refiners have upgraded equipment and added coker units to crack the heavy sour oil, particularly in the Midwest and Rocky Mountains.”

The refiners in the area are dependent on Canadian feedstock and the potential loss would not be easily replaced.

Enbridge’s CEO Greg Ebel said the interconnectedness between the two nations’ energy network should provide some protection from an all-out trade war. The Canadian-based midstream and utility company holds major assets in the U.S.

“We counsel, obviously very carefully, politicians on both sides of the border to not misunderstand the integrated nature of the infrastructure,” Ebel said during a March 4 press conference.

Most likely, the tariffs will affect Canadian producers and U.S. refiners, and the companies are likely to adjust prices until the tariffs end.

During the conference, Ebel discussed the possibility of a shut off of Enbridge’s Line 5, one of the major pipelines shipping crude from Alberta to the midwestern U.S.

“That would seem to be a mutually destructive route for anybody to go down,” he said. “We’ve considered it, but it would be a remote possibility.”

Enbridge itself will most likely not face too harsh a penalty for tariffs, which are paid by the producers—not the shippers.

As for Mexico, the country exported about 625,000 bbl/d of crude and associated products to the U.S. in 2024. East Daley surmised that the Mexican barrels, facing a stiffer 25% tariff, can be more easily replaced than Canadian crude—most likely by Venezuelan or Middle Eastern sources.

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