Trump's Tariffs Raise Concerns for Oil and Gas

President-elect Donald Trump’s proposed tariffs on goods from Mexico, Canada, and China have sparked concern among oil lobbying groups and various industries. Trump's plan to impose a 25% tariff on imports from these countries, starting on Jan. 20, aims to address illegal immigration and drug trafficking. However, this policy could substantially increase costs for American businesses and consumers, and ultimately alter relationships potentially hurting businesses, according to Mexico’s president Claudia Sheinbaum.

Mexico supplies significant amounts of electronics, machinery, oil, and other goods to the United States. In 2023, Mexico was the country’s largest trading partner, with US$475 billion worth of goods imported as reported by Quartz. Conversely, 80% of Mexico’s exports head to the United States, highlighting the critical trade relationship between the two nations.

Oil and gas advocacy groups have voiced strong concerns about these potential tariffs. According to Hart Energy,? analysts consider that the tariffs could affect crude importers raising costs for US refineries. “Over the past year, US refiners have processed 4.03MMb/d of crude from Canada and 587Mb/d from Mexico,” according to Tudor, Pickering, Holt & Co.

The tariffs could raise prices for consumers, as companies pass on the additional costs. Goldman Sachs estimates that tariffs could generate nearly US$300 billion in revenue and increase the effective tariff rate by 8.6%, leading to a 0.9% rise in personal consumption expenditures. This scenario echoes Trump’s previous administration, where tariff threats were used as negotiating tactics.

Drilling and refining industry lobbying groups warned of significant impacts if the tariffs are implemented. "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 the potential to impact consumers and undercut our advantage as the world’s leading maker of liquid fuels," said a spokesperson for the American Fuel and Petrochemical Manufacturers (AFPM). Ed Hirs, a lecturer at the University of Houston and energy economist, warned that tariffs could lead to significant inflation and potentially push the United States into a recession if Mexico and Canada retaliate.?

Brent crude futures rose by US$0.42/b to US$73.43/b, and WTI futures climbed by US$0.45/b to US$69.39/b, influenced by the tariff threat and OPEC+ discussions on oil quotas. Analysts noted that the proposed tariffs would likely increase domestic oil prices, affecting gasoline and diesel prices.

Sheinbaum Warns of Impact From Trump’s Proposed Tariffs

Claudia Sheinbaum responded to the announcement of tariffs on imports from Mexico and Canada, set to take effect when his administration begins. In a letter to Trump, Sheinbaum emphasizes the importance of mutual cooperation and cautions that such measures could lead to inflation and job losses in both countries.

Sheinbaum responded by asserting that tariffs and threats are not the solution to the migration or drug consumption issues in the United States. Instead, she emphasized that cooperation and mutual understanding are essential. “Countermeasures will follow, ultimately jeopardizing the interests of shared businesses,” Sheinbaum stated.