U.S. Oil Tariff to Reshape Global Trade Flows

Goldman Sachs projects that President Donald Trump’s proposed 10% U.S. oil tariff will impose a $10 billion annual cost on foreign producers, primarily affecting Canada, Mexico, and Latin American crude exporters.

Canada and Mexico Face Tariff Pressure

The U.S. remains the dominant buyer of heavy crude, as its advanced refining capabilities make American refiners the most competitive in the market.

• Canada exports 3.8 million barrels per day (bpd) to the U.S. via pipelines.
• 1.2 million bpd of seaborne crude from Mexico and Venezuela also flows into the U.S. market.
• Tariffs will force foreign producers to discount prices, ensuring continued U.S. demand.

Impact on Oil Prices and U.S. Consumers

Goldman Sachs estimates that the 10% tariff on Canadian oil and the 25% levy on Mexican crude will reshape pricing dynamics:

• U.S. consumers will pay $22 billion more per year in oil-related costs.
• The government stands to generate $20 billion annually in tariff revenue.
• Refiners and traders could gain $12 billion by linking discounted U.S. crude to premium global markets.

Why Heavy Crude Will Keep Flowing to the U.S.

Despite tariffs, foreign heavy crude remains dependent on U.S. refiners due to:

• Limited alternative buyers for Canadian and Latin American producers.
• High processing costs for medium crude in Asian refineries.
• U.S. refiners prioritizing domestic light crude over imported alternatives.

Tariffs Could Restructure Trade Without Cutting Supply

Goldman Sachs notes that Canadian and Latin American producers are “captured sellers” with limited export options. As a result:

• They will be forced to lower prices to remain competitive.
• The U.S. will continue to be their top buyer, ensuring ongoing trade flows.
• Global oil prices may adjust slightly, but supply chains will remain intact.

Bottom Line: The U.S. oil tariff will pressure foreign producers, but the flow of crude into the U.S. will continue, albeit at a discount.