RJ Johnston: For the US, Canadian Oil Sector Still Less Risky than Venezuela

In a trade war with the U.S., Canada doesn’t have much leverage against an economy that’s 10 times larger than our own. One of the few pressure points is energy: Canadian oil is one area where President Trump backed off on tariff threats.

That’s why the U.S. intervention in Venezuela and its corresponding takeover of the Venezuelan oil sector is risky for Canada. Some fear that the U.S. could use Venezuelan crude to reduce dependence on Canada and weaken our leverage in trade negotiations or, worse, make our economy more vulnerable to coercion. But in reality, the U.S. still needs Canadian oil, both in market and in geopolitical terms.

On a market basis, President Trump has secured control of 50 million barrels of Venezuelan oil from storage and tankers bound for global markets. This is only equivalent to about 13 days of Canadian oil exports to the U.S. At first, Canadian prices fell by almost 10 per cent due to market concerns over increased supply of competing heavy oil from Venezuela. In the short term, weaker prices for Canadian oil hurt the earnings of oil producers and reduced the royalties and taxes that go to the provincial and federal governments. The Alberta government, in particular, felt the pinch: thanks to lower royalties, every dollar drop in the price of oil could cause a $700 million hit to the provincial budget. But prices recovered quickly when it became clear that any further increases in competing supply, driven by increases in Venezuelan production, could take years to materialize.

Still, the threat of weaker prices adds momentum to government efforts to find new markets, particularly the big ones in the Asia-Pacific. Even before the supply shock from Venezuela, Mark Carney and Alberta Premier Danielle Smith had signed a memorandum of understanding to develop another pipeline from Alberta to the West Coast, which would boost Canada’s export capability to the Asia-Pacific. It would be the second major project in recent years, following the Trans Mountain expansion, completed in 2024, which added 590,000 barrels per day and opened up a new flow of crude from Alberta to Asian markets, particularly China.

Over the longer term, a Venezuelan comeback could produce an unexpected effect: it might help Canadian heavy crude. When more low-priced crude barrels hit the market, refiners often buy and process more of them. The dynamic played out in the 1990s, when a wave of Venezuelan heavy oil—followed by rising Canadian supply—pushed prices down and incentivized refiners to develop and invest in equipment tailored to that particular grade of crude. A re-emergence of Venezuelan crude oil supply growth under the new regime in Caracas, combined with continued growth in Canadian heavy oil, could increase refiner demand for both types of barrels if prices are right.

However, a surge in Venezuelan supply is far from assured. The CEO of ExxonMobil told President Trump in a January White House meeting that Venezuela was “uninvestable” without major changes to its security conditions and investment code. ExxonMobil should know—its Venezuelan assets were nationalized, not once but twice, first in 1976 and again in 2007.

In other words, the real constraint for Venezuela isn’t how many barrels it has but its governance. Canada has regulatory complexity and lengthy processes for assessing project impact and managing greenhouse gas emissions. But as nettlesome as these issues may be, they are minor compared to the uncertainties awaiting prospective oil investors in Venezuela—like who is running the country and what laws will govern foreign investment in oil production—and the costs associated with a near-total rebuild of industry infrastructure.

Compared to high-risk projects in Venezuela, the Canadian oil sector offers access to less risky, cheaper expansions of existing oil sands projects and pipelines. New pipelines and projects in Canada will come with less certainty than expanding existing ones, but they’ll still likely have a lower hurdle rate for investors than comparable projects in Venezuela.

In this context, a win for Canada would be continued access to U.S. markets buttressed by stronger access to Asia-Pacific markets. Asian refineries, particularly in China, that previously took Venezuelan barrels under the now-deposed Maduro government will need to look elsewhere for oil supply, especially if the Trump administration continues its efforts to redirect Venezuelan supply to U.S. markets.

Despite trade tensions, Canada and the U.S. share an interest in a well-supplied and stable oil market that helps limit price shocks to consumers. President Trump has made his preference for cheaper gasoline prices clear. This creates incentives for the U.S. and Canada to coordinate on the Venezuela oil recovery through oilfield redevelopment and establishing a new democratic and internationally recognized government in Caracas.

But that co-operation is far from guaranteed. It may be at odds with the Trump administration’s quest for energy dominance and a more assertive national security strategy that prioritizes U.S. security and control over regional coordination.

It will almost certainly be bumpy, and markets will struggle to digest and interpret a furious and varied pace of geopolitical events and policy statements from Washington. In the meantime, Canada should continue to take a calm and steady approach, reminding the Trump administration of the value of stability to the energy security of both countries and of the strategic contribution that Canada makes as an anchor supplier of U.S. markets.

Today’s crisis is Venezuela. Tomorrow it could be Iran—another massive oil-reserves holder that’s producing well below its historical high capacity due primarily to U.S. sanctions. If Iran enters a period of transition, peaceful or otherwise, and those sanctions loosen, a surge of additional barrels could re-enter global markets, potentially on a much faster timeline than Venezuela. Canada is positioned to confront these market disruptions with a resilience-oriented strategy. We’ll need industry focus on innovation and cost reduction, combined with government regulatory streamlining and strong Indigenous consultation and partnerships, to ensure that Canadian oil stays competitive.

RJ Johnston is the Director of Energy and Natural Resources for the University of Calgary School of Public Policy.

This article was originally published in Maclean’s Magazine on January 20, 2026.

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Source: Maclean's Magazine