Canadian Economics and the Keystone Pipeline Debate

As oil prices remain volatile on global markets Canadians across the nation are reacting quite differently. Some are pleased with the overall dip in fuel prices at the pump, while others are pessimistic over the downward spiral of the Canadian dollar. The Harper government has placed a considerable amount of store in the extraction of oil, a topic which we previously broached in brief. But given the ongoing saga of the Keystone pipeline stateside, perhaps it’s time we revisit Canada’s position in the global economic system to further assess the wider impact of recent events. 

Canada’s claim to crude oil is quite large. We boast the third-largest proven crude oil reserve in the world and our current governing party has attempted to take advantage of that situation. Indeed, for many years Canadians were told by politicians and news media that Alberta was the fastest growing province. From both social and economic perspectives, Alberta grew rapidly in population and finance. This was the direct result of a federal agenda that poured millions into technology and resource development. Oil is a high commodity on the international market and Canada is a key supplier. But lately Canada’s fortunes have turned considerably in this regard. We still extract and sell oil at a considerable rate, but other suppliers have flooded the global market. The result has been economically hurtful for many Canadians, whether directly employed in the oil industry or not. Some analysts have called on the government to increase efforts of resource development, because Canadian companies extract but do not refine oil before selling it on the international market. Others have claimed that oil refinery is an unrealistic goal, and argue that Canada should focus on manufacturing products other than oil to revamp the economy.  

Regardless of individual or collective feeling about the Canadian oil industry, it’s clear that Canada’s economic health is largely tied to the extraction and sale of crude. As a nation we are highly dependent on the global market. Despite efforts to focus resources inside our borders, the Canadian dollar will continue to react according to its international ties. With this in mind it’s worth reflecting once again on Keystone XL, the pipeline which, despite Harper’s ongoing efforts, has yet to move Canadian oil across the nation or south of the North American border.

In the late 1950s, John Diefenbaker, then prime minister, worked diligently to sell Canadian wheat to the Americans. At the time, Canada was in a deep recession and Diefenbaker was elected to the premiership on the promise that he would unify the nation from coast to coast. Once elected, the Progressive Conservatives focused their economic platform on the sale of Saskatchewan grain. Our American neighbours to the south seemed the ideal buyer, but unfortunately for the Canadian economy the demand for grain was not nearly as high as Diefenbaker had hoped. To make matters worse for Canadian-American relations, Diefenbaker’s government decided to deal with China. The nation was plagued by a severe famine, so Canadian grain was certainly ideal. But China was a communist state at the time, and in the midst of an international Cold War, Washington grew increasingly agitated with Ottawa’s economic dealings outside North America.  

Today the global economy is in a vastly different state than it was during the 1950s and 60s when Diefenbaker’s government was in power. Even our friendly neighbours to the south have recently decided to re-open trade and international cooperation with Cuba, the Caribbean island that was under a U.S. economic embargo for years. However, as much as global economics have altered since the end of the Cold War in 1991, the Canadian economy remains dependent on an international system of trade. Accordingly, our government will continue to push the sale of Canadian goods and especially crude oil. But what will the impact of American politics have on these efforts?

Despite continuing pressure, U.S. President Barack Obama seems poised to prevent the approval of the Keystone XL pipeline. Recent reports suggested that Congress may force his hand, but the president made his intentions well-known and used his power to veto the legislation. The ongoing saga has raised the ire of many environmental groups, all concerned with present and future issues. These concerns have been so high that the U.S. State Department released a Final Supplemental Environmental Impact Statement on KXL. The report concluded that the pipeline would not materially add to U.S. greenhouse gas emissions, but nonetheless Obama seems determined to end his presidential tenure without having to approve the pipeline.

For the Canadian economy this means continued pressure to sell crude internationally. But unlike the sale of Saskatchewan grain in the 1960s, currently no single major foreign market needs our product. As the third-largest supplier of crude, our competition in the oil market is extremely high. It is for these reasons that, in the upcoming federal election, opposition parties will take aim at the Conservatives economic platform. The debate will unfold interestingly in both political and public circles, but regardless of where you stand individually, it’s important to recognize Canada’s interdependence on the global stage. As much as wish to improve our current and future economic state, history informs us that much will remain out of our control. Canada is not steering the ship, we’re merely along for the ride.