- President Trump’s new tariffs on energy imports from Canada and Mexico are expected to significantly impact US refiners, particularly those reliant on heavy crude.
- While Canadian oil imports are likely to continue despite tariffs, Mexican oil imports may see a sharp decline due to alternative sources available to Gulf Coast refiners.
- These tariffs could lead to higher fuel prices for consumers, increased market volatility, and broader economic repercussions for industries dependent on oil and gas.
President Donald Trump’s newly imposed 25% tariffs on goods from Mexico and a 10% tariff on energy products from Canada have the potential to send ripples through the U.S. oil and gas market.
These tariffs, effective March 4, come after last-minute negotiations failed, raising concerns about higher costs for refiners and potential disruptions to North America’s tightly integrated energy supply chains.
How Canadian Oil Tariffs Could Disrupt U.S. Refiners
The U.S. imports approximately 4.4 million barrels per day (MMb/d) of crude oil from Canada, accounting for about 27% of total U.S. refinery demand. The Midwest (PADD 2) is particularly dependent on Canadian oil, receiving about 3.5 MMb/d—roughly 75% of Canada’s total crude exports.
Many U.S. refiners, particularly in the Midwest and Rocky Mountain regions, have spent billions upgrading facilities to process Canada’s heavy, sour crude. These refiners prefer Canada’s discounted barrels because they provide the best refining margins.
A 10% tariff on Canadian crude will increase costs for these refiners, and this will both erode margins, and get passed on to consumers in the form of higher gasoline and diesel prices. Refiners do have some options for replacing this crude, but they are more expensive, and there may be logistical challenges. Further, in the short-term it will definitely cause some disruptions to U.S. refinery operations, much as Russia’s invasion of Ukraine did in 2022.
However, because of how deeply integrated the U.S.-Canada crude supply chain is, analysts believe that nearly 90% of Canadian oil imports will continue flowing into the U.S. despite the tariff. The bigger concern is for refiners in California and the Northeast, which rely on Canadian crude shipped from Newfoundland and Alberta. Some may seek alternative sources such as Alaskan North Slope (ANS) crude or heavier Middle Eastern grades but switching suppliers could present the aforementioned logistical and pricing challenges.
Impact on Mexican Oil Imports
The 25% tariff on Mexican crude is even more significant. The U.S. imported about 625,000 barrels per day from Mexico in 2024, mainly heavy Maya crude destined for Gulf Coast refiners (PADD 3). This heavy crude is a critical feedstock for refineries that specialize in processing lower-quality oils into usable fuels.
Unlike Canadian crude, Mexican oil imports could see a sharp decline because refiners along the Gulf Coast have more alternative sources. Venezuelan crude, Middle Eastern heavy grades, and even some Canadian barrels rerouted from PADD 2 could replace Mexican oil. However, redirecting supply chains is not seamless—it involves higher transportation costs and potential disruptions. In the short term, refiners may absorb some of the higher costs, but over time, fuel prices could inch higher as a result.
Wider Economic and Market Impacts
Beyond oil and gas prices, tariffs on energy imports can have broader economic repercussions. Higher refining costs could squeeze profit margins for U.S. refiners, potentially leading to lower capital expenditures, delayed maintenance schedules, and even job reductions in refinery-dependent regions. Additionally, any sustained increase in energy costs could impact industries that rely heavily on oil and gas, such as transportation, agriculture, and manufacturing.
Energy markets also react strongly to uncertainty. If tariffs introduce supply chain inefficiencies or raise the prospect of retaliatory actions from Mexico and Canada, crude oil futures could experience higher volatility. Canada and Mexico could respond by imposing tariffs on U.S. refined fuel exports, making American gasoline, diesel, and jet fuel more expensive in key foreign markets.
Final Thoughts
The U.S. oil market is deeply intertwined with those of Canada and Mexico, and tariffs on crude oil imports will have consequences—some immediate, others playing out over time. While U.S. refiners will still process the majority of Canadian crude despite the 10% tariff, the 25% tariff on Mexican oil could shift trade patterns and raise costs for Gulf Coast refiners.
Ultimately, the energy industry is adept at adjusting to policy shifts, but those adjustments come at a cost. It also takes time to adjust, and prices can be volatile during the adjustment period. If sustained, these tariffs could contribute to higher fuel prices, market volatility, and economic inefficiencies—raising the question of whether the benefits of trade leverage outweigh the financial burden imposed on American consumers.
We give you energy news and help invest in energy projects too, click here to learn more
Crude Oil, LNG, Jet Fuel price quote
ENB Top News
ENB
Energy Dashboard
ENB Podcast
ENB Substack
Energy News Beat