Trump Tariffs Have Profound Impact On Global Oil Trade, OPEC Strategies

OPEC+, which had previously announced an unwinding of production cuts in the second quarter of 2025 to stabilise the market, now finds itself at a crossroads. The tariffs introduce new complexities, as increased Canadian and Mexican crude surpluses could flood global markets, potentially leading to downward pressure on oil prices. At the same time, US supply constraints and disruptions to refinery inputs may lead to regional price spikes. OPEC+ will need to tread carefully, adjusting its strategy to prevent excessive volatility while ensuring that its own members do not suffer disproportionately from the shifts in trade flows.

Compounding the uncertainty, Canada is entering an election cycle, making it more likely to take a firm retaliatory stance against Trump's tariffs. The Canadian government's response-a 25 percent tariff on $105 billion worth of US imports-signals its intent to resist economic pressure from Washington. Such a move could exacerbate tensions between the two countries and create further trade barriers, making energy cooperation more difficult. While Canada's oil industry will likely seek alternative buyers, the transition will not be immediate or seamless, leading to short-term market distortions. OPEC+ may need to reassess its production quotas to account for these shifting dynamics, particularly if Canadian and Mexican crude begins flowing into European or Asian markets in greater volumes.

Despite these challenges, the oil market remains fundamentally bullish. Prices touched a high of nearly $82 per barrel in mid-January, driven by tighter Russian sanctions and supply constraints. However, with tariffs now in play, projections indicate that prices may stabilise around the $75 per barrel range, assuming OPEC+ takes pre-emptive measures to counteract potential disruptions. This assumes that the group will adjust production levels to offset the anticipated surpluses in Canada and Mexico while addressing the risk of supply shortages in the US refining system.

OPEC+ has extensive experience managing geopolitical crises, having navigated a host of supply restrictions over the decades. From military conflicts to politically motivated production caps and quotas, the group has repeatedly demonstrated its ability to respond to external shocks while maintaining its influence over global oil markets. The tariffs imposed by the Trump administration, however, present a different kind of challenge-one that is rooted in trade policy rather than direct supply manipulation. Unlike conventional production cuts or sanctions, which can be countered through coordinated output adjustments, tariffs create a complex web of secondary effects that may be harder to predict and control.

Trump's approach to energy policy appears paradoxical. Even as his administration imposes tariffs on major crude suppliers, the president has urged Saudi Arabia at the World Economic Forum in Davos to ramp up production and lower oil prices. This conflicting stance raises critical questions about the coherence of US trade and energy policy. If Saudi Arabia were to heed Trump's request and increase output, it could exacerbate the supply glut created by redirected Canadian and Mexican oil, further pressuring global prices. Conversely, if OPEC+ opts to maintain or even extend its production cuts, it could lead to further price volatility, particularly if US refineries struggle to replace lost crude supply at competitive rates.