Day: September 1, 2026

From Tilak`s Substack

By Tilak Doshi

The collapse of US-Canada trade talks last week, and Prime Minister Mark Carney’s declaration that “you’re at war when you get attacked,” has turned a tariff dispute into a political toxin that now sits inside the one relationship still holding North American energy security together. Fifty-percent US tariffs have taken effect on billions of dollars of Canadian goods; Ottawa has promised dollar-for-dollar retaliation from September 8th. Crude oil, natural gas and potash were, for the moment, carved out of the American levies, but that exemption cannot be thought permanent. The uncertainty, the public flirtation with using oil as a retaliatory instrument and Carney’s larger strategic posture toward Washington already threaten the physical barrels and the political trust on which the 2025 National Security Strategy depends.

The contrast with what seemed possible only a year earlier could not be more dramatic. The August 2025 Anchorage meeting between Donald Trump and Vladimir Putin, however inconclusive on Ukraine, opened a window onto a potentially different energy order: one in which sanctions-driven distortions might have eased and Russian Arctic and Siberian resources might have again attracted Western capital. Combined with the January 2026 capture of Nicolás Maduro and Washington’s subsequent assertion of control over the rules of Venezuelan oil production, that vision promised hemispheric abundance rather than managed scarcity. Carney’s brinkmanship now risks putting a dagger through it – and doing so at the expense of Alberta first.

The Anchorage window and the promise of abundance

On August 15th 2025, at Joint Base Elmendorf-Richardson in Alaska, the presidents of the world’s largest and third-largest oil producers met for the first time since the outbreak of the Ukraine war. No ceasefire was signed, although the maximalist demand by EU hawks for an immediate ceasefire was dropped as a non-starter. Trump said there was “no deal until there’s a deal”. Putin later conceded that “there were indeed no agreements reached in Anchorage”. Yet the meeting itself, after years of isolation, revived talk of economic cooperation in the Arctic, LNG technology, icebreakers and even possible restarts of ventures such as Sakhalin-1. Russian officials spoke of region-to-region contacts between the Russian Far East and the US West Coast; side conversations touched Novatek technology for Alaskan gas.

That window mattered because the post-2022 sanctions regime boomeranged on its progenitors. Measures intended to turn the Russian rouble into rubble instead accelerated Europe’s de-industrialisation, sent discounted Russian barrels through Indian and Chinese refiners into European markets at a premium and encouraged experiments in non-dollar settlement. A genuine US-Russia thaw would have reversed those distortions, reopened Siberian unconventional plays to American fracking expertise and reduced the incentive for BRICS energy trade to migrate away from the dollar. Developing countries, long subject to decarbonisation demands while the West consumed the fossil fuels that built its wealth, would have gained cheaper energy and a less politicised development path. The ‘spirit of Anchorage’ never became a treaty. By mid-2026 it had largely dissipated. But the mere possibility of ending the sanctions-driven split in global oil trade – and of pairing US technology with Russian Arctic and Siberian geology – was part of a larger architecture of energy abundance. The other half of that architecture was sitting in the Orinoco Belt.

Venezuela’s heavy oil and the Trump Corollary

In the pre-dawn hours of January 3rd 2026, US forces captured Nicolás Maduro and flew him to New York to face narcotics-terrorism charges. The operation was the most muscular application yet of what the administration calls the “Trump Corollary” to the Monroe Doctrine. The November 2025 National Security Strategy had pledged that the United States would “reassert and enforce the Monroe Doctrine to restore American pre-eminence in the Western Hemisphere” and “deny non-Hemispheric competitors the ability to… own or control strategically vital assets in our Hemisphere”. Venezuela’s oil was precisely such an asset.

The Energy Institute’s Statistical Review still lists Venezuela as holding the world’s largest proved reserves – on the order of 300 billion barrels, the great majority of them extra-heavy Orinoco crude. At recent prices that stockpile is notionally worth many trillions of dollars. Venezuelan output has risen from well under a million barrels per day toward roughly 1.2 million, with several hundred thousand barrels now moving to US refiners. Supermajors remain cautious; service companies and smaller independents have moved first. Full restoration toward two to three million barrels per day still looks like a multi-year project even under favourable political conditions. That timeline is why Canadian barrels remain indispensable in the near term – and why treating them as a weapon is so reckless.

President Donald Trump announced on Friday that the US had secured majority control of more than 65 billion barrels of Venezuela’s proven oil reserves through a partnership with private business. This unprecedented US agreement to take control of a fifth of Venezuela’s vast oil reserves is a bet that American companies can revive the nation’s battered energy industry.

As important as the headline volume is the molecule. Long-chain, high-sulphur, high-residuum crude is ideally suited to the delayed-coking complexes that dominate the US Gulf Coast. Those refineries convert discounted heavy sour barrels into diesel and jet fuel more efficiently than light-shale slates can be upgraded. Control of Venezuelan heavy oil therefore complements, rather than merely duplicates, the Permian’s light sweet output. It gives the United States a full-spectrum position across the barrel and a second wing for a non-OPEC Americas bloc that already includes US shale, Canadian oil sands, Guyana’s new discoveries and Brazilian pre-salt, from Alaska to Tierra del Fuego.

Four million barrels a day and the Alberta-Ottawa fault line

EIA data show US crude imports from Canada averaged 3.9 million barrels per day in 2025; weekly figures through 2026 still cluster around 3.5–4.2 million. Those volumes have routinely accounted for around 60% or more of US crude imports. The main destination is not only Houston. It is first the US Midwest, then the Gulf Coast: complex refineries configured over decades for Alberta’s heavy sour crude. Bloomberg put 2025 Midwest receipts near 2.7 million barrels per day vs about 416,000 barrels per day to the Gulf. These barrels are not interchangeable with Permian light or with distant Middle Eastern grades that must travel longer, more vulnerable sea lanes. Without them, utilisation rates fall, product yields suffer and pump prices rise. In a tight global distillate market – the spread between crude and diesel, the “crack spread”, has run over $100 a barrel – the substitution problem is acute. As David Blackmon assesses, there is no ready alternative outlet of comparable size and proximity for Canada either. Canada’s only large operating Pacific marine outlet is the Westridge terminal in Burnaby, the end of the Trans Mountain pipeline, rated at 890,000 barrels per day. That line can be optimised toward about 1.19 million barrels per day by 2028. A separate million-barrel West Coast pipeline has been proposed, with construction possibly starting in 2027. Neither is a substitute, this year or next, for the US inland system.

Canada’s own vulnerabilities are equally structural. Eastern provinces, home to most of the population, still depend on US-sourced barrels or on west-to-east pipelines whose routes pass through Minnesota, Wisconsin and Michigan. Ottawa’s long refusal to approve adequate all-Canadian eastbound pipelines left Toronto, Montreal and Ottawa exposed. Any serious disruption therefore boomerangs on Canada as surely as it would hit Chicago and Houston.

That is why using oil as a weapon would detonate inside Canada long before it wounds the US – an economy 13 times larger that absorbs just under three-quarters of Canadian exports and some 90% of its oil exports. Alberta Premier Danielle Smith has said she “cannot think of a more disastrous policy decision than cutting off or taxing Alberta’s oil to the United States”. Doing so, she warned, would extinguish hundreds of thousands of livelihoods in Alberta, hobble Ontario and Quebec, send the TSX into a dive – and hand US cokers a reason to look to Venezuela instead, perhaps permanently. Saskatchewan Premier Scott Moe was equally blunt: his province “cannot and will not support any kind of export tariff” on oil or potash. The producing Western regions of Canada have told Ottawa no.

Danielle Smith also points out that an export tax on Alberta crude invites a symmetric American levy on gasoline and diesel heading into Ontario and Quebec “right as we turn into fall and winter”. Carney himself said in July he did not “see the value” in using energy as leverage and that Canada must remain a “reliable supplier”. The ‘war’ language of last week sits uneasily with that earlier caution. If Ottawa now flirts with the oil card, it will reopen the oldest Canadian fracture: Alberta and Saskatchewan sell the oil and potash, and the Carney Government in Ottawa is tempted to treat those exports as leverage. Alberta’s separatist undercurrent does not need a better recruiting poster.

This interdependence is a strength when relations are stable. It becomes a glaring weakness when they are not. Even though energy was excluded from the latest 50% tariff list, the collapse of talks has already injected the uncertainty that markets and capital abhor. Cross-border projects feel it immediately. South Bow’s Prairie Connector – a partial reuse of cancelled Keystone XL pipe, with 20-year commitments for about 465,000 b/d and a mid-2027 investment decision – needs a permit that survives the next election. CEO Bevin Wirzba has said the company will not proceed without a “durable” US authorisation. Twenty-year contracts cannot be financed on a relationship described as war.

Waiting out Trump: Democrats, Davos and a lame-duck bet

Mark Carney is a former Bank of England governor and UN special envoy for climate finance who once argued that central banks should help impose “moral sentiments” on capital allocation in the name of Net Zero. In his January 2026 Davos speech he told middle powers that the old rules-based order was fading and that “when we only negotiate bilaterally with a hegemon, we negotiate from weakness” – obviously, if obliquely, referring to Trump’s America. He has signed new “strategic partnerships” with the EU and China, diversified trade talks across four continents and presented Canada as an “energy superpower” whose customers need not be confined to the United States.

Carney elevated Maia Johnson — an American who worked on scheduling and operations for Hillary Clinton’s 2016 campaign and later on the Biden and Harris efforts and who was tied to Michael Bloomberg’s political-data firm Hawkfish — into a newly created senior operating role in the Prime Minister’s Office. The hiring choice is a signal about which American political network Ottawa finds congenial. So are Carney’s private meetings this year with leading 2028 Democratic contenders – including Pennsylvania Governor Josh Shapiro, Pete Buttigieg and Elissa Slotkin – as Democrats begin to audition for the post-Trump era.

The timeline fits a waiting game. People familiar with Ottawa’s deliberations told Bloomberg that Carney’s Government sees little chance of restarting talks before the November 2026 midterms and is designing support “to ride out the balance of Trump’s term if necessary”. Carney himself said Canada would back affected firms “for as long as it takes, in other words, beyond the life of this US administration”. Danielle Smith, from the other side of the same calendar, has urged diplomacy so that Canadian oil can be kept out of the trade war. CityNews put the question directly: is Carney waiting for a lame-duck president?

But a Democratic midterm gain would not automatically unwind executive tariffs; a White House official called that expectation “a desperate pipe dream”. A 2028 Democratic restoration does little to alleviate the trade standoff. It might, however, restore the Net Zero reflex that spent a decade making Canada’s physical ability to get crude out of Alberta and to paying customers harder. Betting the continental oil system on a US partisan cycle is the opposite of energy security.

Trump’s National Security Strategy is an energy-dominance doctrine that treats pipelines, upgraders and heavy-oil reserves as instruments of hemispheric security. The Venezuelan reset was meant to reduce extra-hemispheric influence in the Americas and, over time, to give Washington a substitute source of heavy crude. That substitution is years away. In the meantime any sustained interruption – or even the credible threat of one – raises the odds of tighter product markets, higher prices for American and Canadian consumers alike and the postponement of the very infrastructure that would make the hemisphere more secure.

The Anchorage meeting and the Caracas operation together sketched a world in which the Western Hemisphere could become a low-cost, high-security energy platform spanning Alaska to Tierra del Fuego – light oil from the US Permian and other shale oil basins married to heavy Orinoco and Athabasca crude, insulated from Eurasian pipeline politics and Middle Eastern chokepoints. That architecture still requires Canadian flows in the critical intervening years. Carney’s war language, his Democratic entanglements and the temptation to ‘wait Trump out’ do not create new heavy-oil supplies or new all-Canadian pipelines. Rather, they raise the probability that the existing system fractures worsen – between Ottawa and Alberta, and between Ottawa and Washington – at the precise moment when US strategy is attempting to lock in hemispheric advantage in energy supplies.

The physics, economics and geography of global oil trade flows remain broadly unchanged. What has changed is the political choice to treat an existential energy partnership as another front in a trade war, or as a holding action until the next American election. If cooler heads do not prevail, Carney’s dagger threatens not only the oldest and most intimate trading relationship in North America but also the energy security interests of the entire American hemisphere.

Dr Tilak K. Doshi is the Daily Sceptic‘s Energy Editor. He is an economist, a member of the CO₂ Coalition and a former contributor to Forbes. Follow him on Substack and X.