How Will Canada Replace Saudi Oil?

While Canada's oil reserves sit at around 170 billion barrels and daily oil production is set to hit 5.6 million barrels per day by 2035, the nation still relies heavily on imports from Saudi Arabia. However, in the wake of shaky relations with the Middle Eastern kingdom, Canada's supply of Saudi Arabian crude imports could be on the line.

Canadian tweet crosses political interference line

Following a controversial tweet from Global Affairs Canada urging Riyadh to free arrested civil rights activists, Saudi Arabia issued a freeze on new trade and investment with Canada. The kingdom also expelled Canadian ambassador Dennis Horak and withdrew thousands of Saudi Arabian students attending Canadian universities.

“The kingdom of Saudi Arabia ... will not accept interference in its internal affairs or imposed diktats from any country," tweeted the ministry. "The Canadian position is an overt and blatant interference in the internal affairs of the Kingdom of #SaudiArabia and is in contravention of the most basic international norms and all the charters governing relations between states.”

US set to bridge the gap left by Saudi crude

While rising tensions could trigger a halt in crude trade between the two nations, experts from Canadian owned research firm RS Energy Group assert that Saudi Arabian crude oil imports would be easy to replace, with the US cited as a key supplier.

Currently, refineries in Eastern Canada import roughly 75,000 to 80,000 barrels of Saudi Arabian crude per day. This accounts for less than 10% of total imports and is considered a drop in the ocean compared to imports from the US, which represent two-thirds of total Canadian imports. Thanks to growing domestic oil production, RS Energy Group maintains the US could easily bridge the gap left by Saudi crude if necessary.

"The Saudis, if they choose to supply less to Canada, will divert those barrels, possibly to China, and U.S. barrels that would have gone to China, but are uncompetitive under Chinese tariffs, come to Canada," asserts Judith Dwarkin, chief economist with RS Energy Group. "Basically, the cupboard gets rearranged."

Concerns for Canadian economy

While some experts aren't concerned, others warn that increased tensions could threaten the Canadian economy.

"What you're seeing is that Riyadh's hard line against Ottawa is going to result in substantial harm to the Canadian economy in general," says Omar Allam, CEO of a Canadian-owned global trade advisory consulting firm.

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