Crude import tariffs, exemptions introduce uncertainty to US oil industry: experts

The US oil industry faces an unpredictable outlook if President-elect Donald Trump follows through on newly promised blanket tariffs on imports from Canada and Mexico, experts told S&P Global Commodity Insights on Nov. 26, with uncertainty over exemptions for crude and fuel products and the challenges of waiver applications introducing potential difficulties into companies' plans for 2025 and beyond.

Exemptions are expected if Trump's tariffs are imposed, experts said, but the ideal outcome would be to avoid the tariffs altogether.

"These would obviously be very economically disturbing tariffs if they were put into place," Josh Zive, senior principal at Bracewell LLP, told S&P Global Commodity Insights. "This is what, probably initially, ends up persuading them not to impose them -- the energy sector is one that's going to be hit most dramatically by these sorts of tariffs."

Writing on his social media platform Truth Social late Nov. 25, Trump vowed to levy a new 25% tariff on all products the US imports from Mexico and Canada on Jan. 20, 2025, his first day in office, saying both countries must solve cross-border "drug issues" and stop illegal immigration. Without exemptions, those tariffs would include the millions of b/d of Canadian crude imported to US refineries, likely resulting in cost increases for refiners and higher US gasoline pump prices.

Trump did not mention specific products he might exempt from the tariffs in his post. The Trump transition team could not be reached for comment.

"It is classic Trump," William Reinsch, senior advisor for the economics program at the Center for Strategic and International Studies and former president of the National Foreign Trade Council, said. "It's a leverage move. His strategy is: You hit them in the face, keep hitting them in the face until they fold, and then have a negotiation."

Reinsch said he expects exemptions for energy imports to avoid increased costs of energy for consumers -- whether as part of the initial tariff structure or as through the waiver application process after tariffs are imposed -- to be a "no-brainer."

"He makes sweeping statements and then pulls back when the details become obvious," Reinsch said. "Given what he said about the need to reduce gasoline and oil prices, I think an exemption is likely to happen. But until he says that, you don't really know."

Industry wants free trade

In July 2024, the most recent month for which the US Energy Information Administration has published data, US imports of crude oil from Canada reached a record 4.3 million b/d. According to the EIA, the US imported 6.4 million b/d of foreign crude in 2023, alongside an additional 2 million b/d of fuel products. Imports from Canada accounted for 4.9 million b/d of that 9 million b/d total.

Large US oil industry trade groups -- who were supportive of Trump's 2024 campaign and have since publicly urged his administration to follow through on the industry's preferred policy outcomes, such as more drilling on US federal lands, increased offshore leases, and a return of LNG export permits -- said they remain opposed to tariffs that could raise the costs of production materials and crude supplies.

"Canada and Mexico are our top energy trading partners, and maintaining the free flow of energy products across our borders is critical for North American energy security and US consumers," Scott Lauermann, a spokesperson for the American Petroleum Institute, said.

"American refiners, petrochemical manufacturers and US energy security are best served by free markets," American Fuel and Petrochemical Manufacturers spokesperson Rachel Farbman said. "The U.S. refining kit benefits from crude sourced on the global market -- especially North American crude, and we are the world's leading exporter of gasoline. Across-the-board trade policies that could inflate the cost of imports, reduce accessible supplies of oil feedstocks and products, or provoke retaliatory tariffs have potential to impact consumers and undercut our advantage as the world's leading maker of liquid fuels."

'Warning shot'

In his first term, Trump often declared potential tariffs on foreign countries as a precursor to negotiations. In 2026, the US-Mexico-Canada Agreement -- a trade pact between the three countries signed during Trump's first term, which replaced the North American Free Trade Agreement, and which also featured tariff threats -- is scheduled for a required review.

The expectation is that Trump will use his latest tariff threat as leverage ahead of those discussions before suspending the tariffs in lieu of discussions with the two countries, Reinsch said.

"It's just moving up the timetable," he said. "Then on Jan. 20, he'll probably say, well, the Canadians and Mexicans have made appropriate noises, and we're going to have a negotiation. I think that's the most likely outcome. But you have to plan for actual imposition, because that's the only prudent thing to do."

Bob McNally, president of Rapidan Energy Group, said the announcement was a "warning shot intended to elicit concessions on border policy."

"If the US did put a 25% tariff on crude imports from USMCA neighbors, it would drive up pump prices in the Upper Midwest since Canadian heavy sour crude exports and PADD 2 complex refiners are inextricably intertwined with few options to divert exports or substitute feedstock," McNally wrote in an email. "For this reason, and to avoid upending the entire USMCA, tariffs will likely be avoided or pared back to hitting drivers' pocketbooks."

Zive said that consultation with the energy industry could convince the incoming administration to step back from the tariffs entirely, citing the uncertainty of exemptions and the time cost of waiver applications to companies seeking to avoid higher import prices.

"The exclusion process provides very cold comfort to most large industries because of the delays involved in it," Zive said. "The process is inherently tilted toward denying exclusions, and it becomes very costly to engage in it. Often you're just adding process on top of tariff costs."

"I think people right now are hoping, and I think it's a reasonable hope right now, that there's actually a path out to avoid this set of tariffs," Zive said.