'Displace Saudi barrels': a Trump-like cry heard in Canada

The argument that Saudi oil doesn't have a place in Canadian refineries makes little economic sense, but that's because it's not really about oil.

In post-Trump reality of Muslim bans and border walls, rhetoric about Saudi Arabia carries dark undertone

The emotional state of Canadian pipeline politics leaves an opening for U.S. President Donald Trump's America First trade policies to migrate north of the border.

Canada likes to think it has enough good sense to avoid the belligerent trade protectionism that's currently driving NAFTA talks over a cliff.

More often than not, that's the case, with one curious exception — 86,000 barrels a day of imported Saudi oil.

It's a relative drop in the bucket compared to the four-million-plus barrels produced here every day, and it's only a bit more than a 10th of Canada's daily imports of 759,000 barrels. More than half of those now come from the U.S.

Yet for years now, the claim that Saudi oil doesn't belong in Canadian refineries — an argument with Trump-like echoes akin to Make Canada Great Again — continues to take up an undue amount of oxygen in the national energy discussion, despite economic and geographic realities that suggest otherwise.

"Of all the things going on in Canadian energy policy right now, this is one of the less controversial ones," said Robert Johnston, chief executive of political consultancy Eurasia Group.

Saudi barrels

At a glance, it's sensible enough that western Canadian barrels would be a nice fit for the nation's eastern refineries, but that possibility also ignores the existing network of pipelines that Canada's oil industry spent decades assembling to ship oil south and not east.

Any signs of chafing at the symbiotic relationship between Canada and the world's largest gasoline-consuming nation only showed up earlier this decade when booming oilsands production became penned in by a lack of pipeline capacity.

In 2016, nearly two-thirds of Canadian oil imports came from the U.S. (CBc)

Among the many targets of the oil industry's by now well-understood dismay over pipelines are what it sees as the inefficiency of the National Energy Board, the misplaced priorities of federal and provincial governments, the intransigence of at least one big city mayor, and a belief that environmental concerns are trampling the country's economic interests.

After a decade of stasis, a frustrated oilpatch's willingness to glom onto nearly any pro-pipeline argument is understandable, but it still doesn't mean animosity toward Saudi barrels makes economic sense.

Consider Energy East, TransCanada's now-cancelled project to ship oil from Alberta to New Brunswick. To get rid of 86,000 barrels of Saudi oil would mean sending Alberta crude 4,600 kilometres across the country, an expensive trip even by seaborne tanker standards.  

"It's not a given that it would be cheaper to bring it through a pipeline than through some of those tankers," said Eurasia's Johnston.

For most of the 1.1 million barrels that would have landed at Irving Oil's 320,000 barrel-a-day refinery, the trek would then include a further tanker trip to the U.S. Gulf Coast.

Those transportation costs, not to mention the $12 billion earmarked for the project, make it easy to understand why TransCanada shelved Energy East, a backup plan from inception, in favour of Keystone XL, a 1,900-kilometre straight shot that gets oil to the same place. Better still for Canadian oil producers is Kinder Morgan's Trans Mountain expansion, a mere 1,150-kilometre hop to the west coast that comes with the added benefit of opening up the coveted Asian market to Canadian crude.

Canada's oilpatch, according to the industry association, still needs pipelines, but not as many as once thought. (Andrew Leach/University of Alberta)

Fundamentally, what matters to Canada's industry is fetching the highest price for its barrels by locking in the lowest transportation costs. It's a straightforward enough idea that tends to get brushed aside when more alluring yet specious arguments against Saudi barrels are trotted out.  

Ostensibly, the rationale is that importing oil from a country that abuses human rights is a moral failing for Canada. It's an argument that has the potential to be credible, if applied with any rigour or consistency.

Straw man argument

If human rights were really the issue, however, those same voices wouldn't just cherrypick a single import from Saudi Arabia, but would also, for example, demand that Canada stop trading with other countries with similarly dismal human rights records, such as China.

The silence when it comes to Canada's third-largest trading partner is telling. Rather than a sincere part of a principled stand against an authoritarian regime, calls to displace Saudi barrels instead use the Kingdom as a handy strawman.

"There's a clear kind of hierarchy, when you say Saudi oil is bad, but all the other oil we import is OK," said Dimitry Anastakis, a professor of Canadian economic history at Trent University. "There's a lot of rhetorical trickery and chicanery going on around this."

The oil industry's deep yearning for a pipeline, combined with uncertainty over the fate of Keystone XL and Trans Mountain, means Saudi barrels could just be an any-port-in-a-storm argument of convenience.

Borne out of frustration though it may be, the act of singling out Saudi Arabia also participates in a more troubling brand of U.S.-style dog-whistle politics that finds traction by exploiting the desire for a pipeline.

"If you say Saudi Arabia, you're positioning yourself on one side of a debate which since 9/11 has a lot of easily identifiable ideological, religious and racial connotations," said Anastakis. "We're not anywhere near what's going on in the States, but the spillover, you can already feel it."

Economic nativism

The argument against Saudi barrels is further complicated by a suspicion of imports in general, regardless of whether the belief stands up to economic scrutiny.  

"When people refer to the dollars that are spent on imported oil as though those dollars are lost to the economy — that's wrong," said Trevor Tombe, an associate professor of economics at the University of Calgary.

A flexible exchange rate, Tombe explains, means that any money that flows out of the economy also flows back via increases to exports and foreign investment that are encouraged by a weaker currency. As a defence of imports, however, an esoteric discussion about the country's balance of payments lacks the rhetorical force of pointing to money spent importing oil from an unsavoury regime.

U.S. Commerce Secretary Wilbur Ross is putting Trump's Fortress America trade policy into practice during NAFTA renegotiations. (Carolyn Kaster/Associated Press)

"There's often an undercurrent of foreign equals bad, and I think it's become a little bit more obvious and closer to the surface after the last U.S. election," said Tombe.

"Protectionism here often comes from, 'Oh, Canada needs to be self-sufficient and self-sufficiency is good for its own sake.' But that's just not the case. We're a small country, we gain from trade much more than most other countries."

The impulse to protect a domestic industry periodically leads Canada into flirtations with resource nationalism. While plenty of good reasons exist to support Energy East, not the least of which include bolstering New Brunswick's job market, displacing Saudi barrels isn't among them.

What's more, in a post-Trump reality of Muslim bans and border walls, the rhetoric around Saudi Arabia carries an unavoidably darker undertone.

If the ugly economic nativism that's arisen in the U.S. migrates north of the border, the opening may come from political opportunists exploiting frustration over pipelines — and that's one import that really would be truly harmful.


Paul Haavardsrud writes for CBC's western business desk in Calgary. He is also a producer on CBC Radio’s national business desk where he talks about business on Radio One in the afternoons. Prior to that he worked for newspapers. On Twitter, he’s @paulhaavardsrud.