Business Insights
- Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
- The introduction of tariffs could hinder the US's clean energy initiatives by raising input costs for materials like nickel
- US domestic suppliers might benefit from higher prices, but overall oil consumption is expected to decrease due to elevated costs
“If it moves, tax it,” as Ronald Reagan once said, describing the government’s view of the economy. Donald Trump appears to hold a similar perspective on tariffs. We might soon find out whether crucial US energy supplies keep moving, and whether this is good or bad for the Gulf.
Mr Trump threatened 25 per cent tariffs on all imports from Canada and Mexico, in response to their alleged failure to prevent the passage of illegal drugs and immigrants. He also plans to impose a tariff on Chinese products 10 per cent above any other tariff, having earlier proposed tariffs of 60 per cent on China, and 10 per cent or 20 per cent on all other countries.
As usual with the incoming US president, this is not in the nature of a carefully crafted policy proposal. Sources told Reuters they would apply to oil. But it is not clear whether these tariffs will be imposed at all, or how they might be lifted. In turn, Ottawa and the Palacio Nacional would decide how to respond.
Canada and Mexico are major energy suppliers to the US. The northern neighbour provided more than half of the US’s oil imports of 6.3 million barrels per day and Mexico came in second with another 8 per cent in September. Saudi Arabia and Iraq were the next two largest, but make up less than 9 per cent between them.
And Canada dominates natural gas: 99 per cent of US imports in September. These were not just voluminous but cheap, costing just $1.25 per million British thermal units, compared to the $12.30 paid for a small amount of liquefied natural gas (LNG) that makes up the other purchases. Canada is also an important minerals supplier, including about half of the US’s nickel requirement.
Conversely, some US natural gas flows to Canada, mostly to the eastern provinces, while Mexico is an important outlet for US gas exports.
Untangling the impact of these tariffs is complex. They will affect US energy consumers, the suppliers, downstream businesses, and competitors.
The simplest, and largely correct, view of tariffs is that they are ultimately paid by the final consumer in the importing country. They slow economic growth and raise inflation. Domestic suppliers, such as US oil producers, will enjoy higher prices, and presumably increase output. But the higher prices mean that American oil consumption overall will be lower than otherwise.
The effect on refiners, though, is complex and needs a microanalysis of the US oil industry. Several sophisticated centres import Canadian and Mexican heavy oil to break it down into lighter, more valuable products.
Faced with paying more for feedstock, they might cut their runs, or buy alternate crudes. Middle Eastern heavy grades such as Arab Heavy from Saudi Arabia or Basrah Heavy from Iraq are the most likely, but not perfect substitutes.
And contrary to the most basic economic theory, in this case, the supplier too may suffer from tariffs. Producers in western Canada rely on pipelines to the US for exports, some of which goes all the way to the Gulf of Mexico coast to be sent elsewhere.
With limited non-US outlets, Canadian companies might have to absorb some of the levies themselves. Their production costs are high, but Canada has been one of the leaders of global production growth over the last decade. A slowing of that output raises prices worldwide.
Canadian gas producers have been suffering rock-bottom prices for years. The LNG Canada export plant, led by Shell, is expected to start up next year and ease the glut. But again, tariffs will raise prices for US consumers, probably modestly given how cheap they already are, and cut Canada’s output.
The second stage of Mr Reagan’s view of government is, “If it keeps moving, regulate it”. No doubt US energy users will lobby for exemptions and claim special circumstances, a feast for influencers, political contributors and purveyors of corruption. Temporary shortages or local hikes in fuel prices will be met by further state interference.
Canada and Mexico will also respond. So far Mexico’s new president, Claudia Sheinbaum, appears inclined to stand firm on concessions. They may seek more non-US outlets, and they could also impose reciprocal tariffs, whether on energy or other goods, but Mexico in particular relies heavily on US gas imports and would have to consider the impact on its domestic economy.
Perhaps it might finally get serious on unlocking its own significant resources, including shale and deep offshore. Or it might turn to more LNG imports, which would indirectly benefit Gulf and other exporters, including Qatar, Oman and the UAE.
Projects intended to import US gas and re-export it as LNG, such as Altamira which started up in September, may be stuck with tariffs that are not offset by higher prices, similarly to the transit of Canadian oil through the US.
The emerging US effort to build up its clean energy industry will also be hit. It is unlikely the tariffs will encourage much more manufacturing of solar panels or batteries domestically. They will, in fact, increase input costs, such as those for nickel. They could actually make the US more dependent on China, if it replaces Canadian nickel with that from Indonesia, where most production is by Chinese companies.
But the most significant global impact will be uncertainty. Energy investors, producers and consumers will have to contend with flows of oil, gas and minerals that are driven by politics more than economics, that might change overnight with a presidential post. This will deter investment. And it further diminishes the flexibility of the global energy system, already hit by the stoppage of Russian gas to Europe and the interruption of most shipping through the Red Sea.
The final step by government, according to Mr Reagan, is, “If it stops moving, subsidise it”. So we can expect trade barriers to bring much more government interference, probably to bad effect. Indeed, tariffs are bad economics but good politics.
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
more from Janine di Giovanni
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
Killing of Qassem Suleimani
'Shakuntala Devi'
Starring: Vidya Balan, Sanya Malhotra
Director: Anu Menon
Rating: Three out of five stars
What went into the film
25 visual effects (VFX) studios
2,150 VFX shots in a film with 2,500 shots
1,000 VFX artists
3,000 technicians
10 Concept artists, 25 3D designers
New sound technology, named 4D SRL
CREW
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Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
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Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
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South Africa v India schedule
Tests: 1st Test Jan 5-9, Cape Town; 2nd Test Jan 13-17, Centurion; 3rd Test Jan 24-28, Johannesburg
ODIs: 1st ODI Feb 1, Durban; 2nd ODI Feb 4, Centurion; 3rd ODI Feb 7, Cape Town; 4th ODI Feb 10, Johannesburg; 5th ODI Feb 13, Port Elizabeth; 6th ODI Feb 16, Centurion
T20Is: 1st T20I Feb 18, Johannesburg; 2nd T20I Feb 21, Centurion; 3rd T20I Feb 24, Cape Town
Despacito's dominance in numbers
Released: 2017
Peak chart position: No.1 in more than 47 countries, including the United States, the United Kingdom, Australia and Lebanon
Views: 5.3 billion on YouTube
Sales: With 10 million downloads in the US, Despacito became the first Latin single to receive Diamond sales certification
Streams: 1.3 billion combined audio and video by the end of 2017, making it the biggest digital hit of the year.
Awards: 17, including Record of the Year at last year’s prestigious Latin Grammy Awards, as well as five Billboard Music Awards
Monster
Directed by: Anthony Mandler
Starring: Kelvin Harrison Jr., John David Washington
3/5
Business Insights
- Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
- The introduction of tariffs could hinder the US's clean energy initiatives by raising input costs for materials like nickel
- US domestic suppliers might benefit from higher prices, but overall oil consumption is expected to decrease due to elevated costs
