Trump tariffs could impact US tanker tradesTrump tariffs could impact US tanker trades

US President-elect, Donald Trump, has threatened to slap 25% tariffs on neighbours, Canada and Mexico, until such time as the flow of drugs and migrants stops.

Since Canada to the north and Mexico to the south both supply large volumes of crude oil to US markets, there are far-reaching implications for the North American energy market. Analysis by London shipbroker, Gibson, notes that Canada’s exports to the US of more than four million barrels of heavy crude a day move mostly through pipelines and would therefore be difficult to redirect.

About three quarters of the Canadian crude goes to the midcontinent region of the US, Gibson said, where refineries are geared up for these heavy grades. There is no ready alternative source of crude oil and refiners would have few options but to pay the tariff and pass the cost on to consumers, or cut refinery runs.

If Trump were to proceed with the tariffs, Canadian oil producers would have few options for other markets, Gibson said. The Trans Mountain Expansion (TMX) pipeline, opened in May, has doubled Canadian seaborne exports but spare capacity is limited. About 175,000 barrels a day of TMX crude that currently goes to the US west coast could be redirected to Asia but these barrels would have to be replaced with supplies from Latin America or the Middle East, driving up tonne-mile demand.

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For Mexico, the situation is less complex, Gibson said. All of that country’s exports move by sea and European and Asian refiners could take up more Mexican oil if US demand fell. This would boost tonne-mile demand and could generate more business for larger tankers on long hauls. However, Gibson warned that vessels currently ballasting from east of Suez to the US Gulf might well ship these cargoes, lessening the impact.

The shipbroker concludes that it is difficult to see the tariffs being enacted in their present form because they would raise costs for US consumers. The broker notes that the President-elect has used tariffs as a negotiating ploy in the past.

Canadian Prime Minister Justin Trudeau dined with Trump at his Mar a Lago estate on Friday evening. The two men were said to have had a productive meeting and an ‘excellent conversation’.