All the news lately about oil tankers and the Middle East makes you wonder why Canada isn’t at the forefront as a solution to increasing instability in global energy markets. Our democratic country – although not immune to uncertainty through lengthy regulatory processes and delays – is free of violent conflict as seen in the Red Sea, Bab al-Mandab Strait and the Strait of Hormuz.
All three shipping lanes are vital for global trade. Frequent attacks and ship seizures in these hostile and dangerous areas are counterproductive to underpinning global energy security and supply at a time when we need it the most.
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First, the 2022 war in Ukraine sent shockwaves through global energy markets – the adverse effects of which are still being felt worldwide.
Thankfully, for our European allies, the U.S. has been able to largely supplement the continents' energy needs with a rapidly expanding liquefied natural gas (LNG) export industry, as our southern neighbour outpaced Australia and Qatar to become the world’s top LNG exporter in 2023 . U.S. oil exports also hit a record high last year as the world’s top economy took advantage of the opportunity to maximize global energy security for itself and its closest allies and trade partners.
Now, it’s conflict in the Middle East threatening oil supply, where escalating aggressions may see much of the region drawn into a wider war.
According to a year-end 2023 study by the World Bank, the current worst-case scenario for Middle Eastern conflict would be similar to that of the 1973 Arab oil embargo, with as much as eight million barrels of oil per day (bpd) removed from the global market and prices shooting up to as high as $157 per barrel . Less severe scenarios include oil supply reductions of anywhere from two to five million bpd and prices rising between $102 and $121 per barrel .
As consumers, the microeconomic consequences of high oil prices are likely already apparent. Gasoline, for example, is produced from oil, so the typical household is left with less money to spend on groceries, entertainment and other expenditures when oil prices are high. Businesses are the same; their goods must be shipped from point A to point B using transportation such as airplanes or cargo ships, which are highly reliant on oil fuels as inputs. Therefore, high oil prices shoot up the cost of doing business, just as it does for households .
The macroeconomic consequences of skyrocketing oil prices aren’t too different. Oil price increases, in general, increase inflation and reduce economic growth. Rising inflation directly affects the price we pay for thousands of petroleum products and indirectly affects the price for services that rely on these products as companies are forced to pass on extra costs to consumers. Higher oil prices also depress the supply of other goods because they become more expensive to produce and obtain, resulting in less free cash flow amongst consumers and suppressing economic activity altogether .
Oil tankers divert from Red Sea after US, UK strikes in Yemen https://t.co/48fE1cXneF— Canada Action (@CanadaAction) January 12, 2024
At a time when countries worldwide are contending with high inflation and commodity prices contributing to a cost-of-living crisis , another “oil shock” like that seen during the 1973 Arab oil embargo, the 2003 war in Iraq, or the 2011 civil war in Libya is the last thing we need.
A partial solution to decades of volatile, market-upending conflict in hostile places of the world seems obvious --- to develop more access to democratic sources, like Canada.
Canada is one of the most stable, responsible, and reliable oil and gas exporters globally. Home to the world’s third-largest proven oil reserves – at roughly 173 billion barrels – our country is blessed to be free from the armed conflicts seen on the other side of the planet. Over the past several years, Canada had an immense opportunity to become even larger of an energy powerhouse through the development of new export pipelines and LNG projects, only to see many of these opportunities squandered away – to the benefit of Middle Eastern producers and others abroad.
Keystone XL, Northern Gateway and Energy East, for example, are three now-defunct long-distance transmission pipelines that would have opened up millions of barrels per day of additional export flexibility for our democratically produced oil to the world. Since Keystone XL was first proposed in 2008 until it was cancelled in 2021, global oil demand has grown by more than 10 million barrels per day.
Now it is 2024, and it has become evident that while market-disrupting wars rage around the world, blocking the responsible development of Canadian energy projects like Keystone XL has done absolutely nothing to keep a single barrel of oil in the ground.
The International Energy Agency, U.S. Energy Information Administration, OPEC, Wood Mackenzie, S&P Global, and many other organizations have all recently said they predict global oil demand will continue rising for years to come. While the exact volume of growth is debated, one thing we all can and should agree on is that our energy should come from the most responsible suppliers.
It is dumbfounding to think that after all the oil crises originating from Middle Eastern conflicts and the severe economic consequences felt by people all over the globe, we haven’t yet turned to more reliable and responsible sources of supply to fulfill our energy needs.
We choose Canadian oil every day of the week for all the reasons above, and so should you.
Global oil demand is due to rise by almost 2 million barrels a day (b/d) in 2024, with China accounting for over 25% of that increase according to a report by Wood Mackenzie.https://t.co/smrYQPprnW— Canada Action (@CanadaAction) January 12, 2024
1 - https://www.nytimes.com/2023/10/30/business/economy/middle-east-war-oil-prices-world-bank.html
2 - https://www.frbsf.org/education/publications/doctor-econ/2007/november/oil-prices-impact-economy/
3 - https://www.imf.org/external/pubs/ft/ar/2023/in-focus/cost-of-living-crisis/
4 - https://www.afr.com/markets/commodities/us-becomes-top-lng-exporter-overtaking-australia-and-qatar-20240111-p5ewfd
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