Is restricting U.S. from Canada’s oil ‘crazy’? Here’s what happened before

The escalating trade war between Canada and the U.S. has reignited the debate over whether to use Canadian energy exports as leverage over the Trump administration — but some experts are pointing to history while warning against the idea.

More than 50 years ago, in the midst of a global energy crisis, Canada angered the U.S. by putting an export tax on the oil it sold south of the border. Ottawa then went further by launching the National Energy Program, which aimed to reduce the oil industry’s reliance on American investment and secure domestic supply.

2:14 The history of Canada’s turbulent relationship with the U.S.

While these moves led to the establishment of both Petro-Canada and, eventually, North American free trade, they also sparked decades of Western Canada alienation that are still being felt today.

Now — with another energy crisis raising gas prices, an upcoming referendum on Alberta separatism and increasing tensions with Washington — would be an unwise time to repeat that history, says Heather Exner-Pirot, a senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute.

“It’s not in our interest to stymie our most valuable export,” she said in an interview.

“It would be absolutely seen as Alberta being the sacrificial lamb so that Ontario can feel some schadenfreude on this issue…. It would be wildly crazy to do this.”

1:59 Alberta premier says cutting off energy exports ‘not viable’ amid U.S. trade dispute

In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) banned oil sales to the U.S. and any other country supporting Israel in the Yom Kippur War with Arab states that same month.

The export ban sent global oil prices soaring, and the U.S. in particular struggled with gas price shocks and shortages.

Canada responded to the energy crisis by imposing an export tax on its oil, which it had been selling to the U.S. at a lower fixed rate. The revenues from the tax would go toward subsidizing refiners in Eastern Canada, which at the time still relied on more expensive foreign oil imports — including from the Middle East — and also faced higher gas prices.

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American politicians and media commentators complained Canada was “exploiting” the U.S.’s energy problems, and some referred to Canadians as “blue-eyed Arabs” when Ottawa raised the export tax rate alongside the soaring world price.

“We’re not out to gouge the Americans, and I wish to God they’d stop saying we are,” a Canadian official told the New York Times in 1974 in response to the criticism.

Alberta, meanwhile, opposed the tax by arguing it should reap the economic benefits of the resources it produced. A deal was ultimately struck to split the tax revenues between oil-exporting provinces and the federal government, but the conflict soured relations between east and west.

The export tax was lifted in 1984, and the North American Free Trade Agreement struck in 1987 forbid any export taxes on any goods traded between Canada, the U.S. and Mexico — a clause that was maintained under the current Canada-U.S.-Mexico Agreement.

6:32 “We can dismantle the U.S.”: Doug Ford, other Canadian premiers react to Trump 50% tariff threat

In 1980, the Liberal government led by Pierre Trudeau introduced the National Energy Program in response to both the 1973 energy crisis and another in 1979 after the Iranian Revolution that exposed Canada’s vulnerabilities as both a net exporter and net importer of oil.

The stated goals of the policy were to boost Canadian ownership of its oil industry, which was mostly built and run by American companies, and to secure and increase domestic supply in order to curtail foreign reliance — making Canada energy independent. It would also aim to keep energy costs low for Canadian consumers.

The program faced major backlash in Alberta, which accused Ottawa of interfering in provincial jurisdiction by setting terms for how its oil is produced and sold. Alberta’s then-premier Peter Lougheed threatened to curtail the province’s oil production in order to force revenue-sharing concessions from Trudeau.

The U.S. also opposed the policy, saying it unfairly discriminated against foreign investment. Some congressional leaders at the time urged the Reagan administration to retaliate against Canada, though the administration opted instead to quietly seek legislative amendments with terms more favourable to the U.S.

The National Energy Program was ultimately dismantled by former prime minister Brian Mulroney’s Progressive Conservative government just five years after it was introduced.

1:55 ‘Tempest in a teapot’: Greer downplays Canadian reaction to 50 per cent U.S. tariffs

In a June video outlining his energy policy, Prime Minister Mark Carney — who was raised in Edmonton — said he remembered how the National Energy Program “made Albertans feel like our resources weren’t our own.”

“What should have brought us together began to divide us, contributing to a half century of politics that have too often pulled us apart,” he said in the video.

“I’ve acted as prime minister to the best of my abilities to help put those divisions in the past by focusing on what we can build together for the future. From my perspective, there is no more important goal than a strong, united country working together in our common interests.”

Exner-Pirot says those comments, and efforts like recent energy agreements with Alberta and the new West Coast oil pipeline project, suggest Carney doesn’t want to do anything that would that would jeopardize that work — including capping oil exports to the U.S.

“He has gained some trust in Alberta,” she said. “And then we are making movement on oil and gas: we’re going to be producing more, we’re going to be building more.

“To forcefully reverse that, it would be so self-defeating, it would be so stupid … and we still have a referendum coming up in less than two months’ time.”

Richard Masson, an energy industry expert and former CEO of the Alberta Petroleum Marketing Commission, said it would also be a mistake to further anger Americans already facing high gas prices from the war in Iran by potentially raising those costs even more.

“We need friends in America to help the U.S. administration change its point of view,” he told Global News. “That probably should be our focus, rather than trying to antagonize and provoke people who really depend on us.”

Exner-Pirot agrees.

“You stop energy exports to somebody in the middle of an oil crisis, you’re not the good guys anymore.”

— with files from Global’s Heather Yourex-West