Strategic, Geopolitical Considerations of Canada’s Energy Policies

The topic of the development of Canada’s oil and gas resources has been highly contested in the last several years. On one hand, it has been argued that the development of Canada’s gas and oil resources should not be prioritized because such developments would cause undesirable carbon emissions. The other side of the debate has highlighted the opportunity cost for Canada’s economy of not developing its oil and gas resources. However, Russia’s invasion of Ukraine has brought forth geopolitical, strategic considerations. From the perspective of this new dimension, what are the best next steps?

An indirect consequence of the tragic Ukrainian war is the stark increase in energy costs. Already high, gasoline prices have soared since Russia began its invasion of Ukraine. Today, one will be hard set to find gasoline for less than $1.50 per liter anywhere in Canada.

The explanation for these changes in prices lies in the fact that Russia is one of the largest producers of (crude) oil and gas in the world, representing 12 percent of the global oil trade. The price of crude oil is the biggest factor determining the price of gasoline at the pumps. As many buyers of crude oil are choosing more expensive alternatives to Russian oil, the higher costs of crude oil are being translated into higher global prices for gasoline. Importantly, buyers of crude oil are looking for alternative sources in fear that imports of oil and gas from Russia will be banned. These developments affect the prices in Canada even though Canada imports very little crude oil directly from Russia.

The place Russia occupies in global oil markets also explains why the United States hesitated to place sanctions on Russian oil and gas-which they eventually did, on Tuesday, March 8. Their hesitation came from the awareness that such sanctions would even further decrease global gasoline supply, and, in turn, increase gasoline prices even further. Canada has also banned crude oil imports from Russia. However, this will have negligible effects on gasoline prices since Canada barely imported crude oil from Russia in the first place. The effects of sanctions on Russian oil and gas would be particularly felt in Europe, where Russian oil directly accounts for 25 percent of oil purchases.

Therefore, it is quite painful to ensure that sanctions are maximally effective. Sanctions on Russian oil and gas ensure the effectiveness of overall economic sanctions because oil and gas constitute a large part of the Russian economy- as well as the wealth of oligarchs. For example, in 2021, revenues from the oil and gas sectors accounted for 36 percent of Russia’s national budget. Canada’s gas and oil sectors account for less than 10 percent of its GDP.

The current situation also makes it clear that Russia’s market share for oil and gas not only makes retaliation difficult; it also gives it the ability to pressure countries dependent on its oil to make policy changes. This leverage would be exerted through threatening to curtail oil and gas production, which would, in turn, increase energy prices. Russia did just this when Germany delayed approving the Nord Stream 2 Pipeline.

In response, Canadians have argued that the development of Canadian oil and gas resources should be prioritized. It has been said that the underdevelopment of North America’s natural resources has made many countries dependent on Russia, and has thus given Russia geopolitical leverage. Accordingly, many have suggested that moving forward Canada should focus on developing its own natural resources. Such a move could decrease Europe and North America’s dependency on unsavory regimes by offering other sources of oil and gas, while at the same time creating jobs for the people of Canada.

One advocate for the North American development of natural resources is the Albertan government. Albertan premier Jason Kenney has stated that had the Keystone XL pipeline not been vetoed by the Biden administration, Canada could have contributed nearly 1 million barrels a day of oil. He also said that instead of oil from dictatorial states, Canadian oil should replace Russian oil. This is in reference to the United States’ recent overtures to Venezuala and Cuba- which, if successful, would bring more oil to global markets.

Others have rejected such arguments. These voices agree that dependence on antagonistic regimes for oil is a problem, but they champion less dependency on fossil fuels in general as the solution. It is for this reason that some see the current oil crisis as an opportunity to take swift action towards renewable energies; higher gas costs will lead to people demanding more renewable sources of energy. This is the logic invoked by Canada’s environment minister Steven Guilbeault.

Both proposed paths have merit. However, it does not seem clear that they are necessarily mutually exclusive. The predicted timeline for when Canadian oil could significantly affect the global supply of oil is shorter than the predicted timeline for when fossil fuels could be adequately replaced by renewable energies. Thus, while we are still dependent on fossil fuels, it would seem wise to contribute to improving North America and Europe’s strategic, geopolitical position in the world-by producing oil-, while at the same time investing in renewable energies. Moreover, even when Canada does significantly replace fossil fuels, other countries may not be able to do so. As such, a simultaneous prioritization of oil and fuel production would diminish the geopolitical position of many problematic countries for some time into the future.

Edited by Kate Miller.

The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Studies or the Political Science Students’ Association.

Photo image by Rex Turgano and obtained via Flickr under a 2.0 Generic (CC BY 2.0) License.