There’s an old saying about not biting the hand that feeds you. Yet, in the latest chapter of economic self-sabotage, Canada finds itself at the mercy of an avoidable crisis—one that exposes just how vulnerable the country’s energy sector has become to political machinations and poor strategic planning. Enter Eric Nuttall, senior portfolio manager at Ninepoint Partners, who is sounding the alarm on the ramifications of tariffs and pipeline negligence.
The Energy Noose Tightens
“All Canadians over the weekend felt a certain sense of betrayal,” Nuttall states bluntly. And for good reason. On Saturday, February 1, The United States, Canada's largest trading partner, acted to impose tariffs that could inflict up to a 4% GDP hit on the economy – by the end of Monday, as we now know, both Canada and Mexico managed to wrangle a 30-day hold-off on those tariffs. But while it’s easy, however, to point fingers at Washington, the real problem lies much closer to home.
“It’s obvious that if we had built out more pipelines over the past 9-10 years, and not be sending 97 percent of our oil to the United States, that we’d be in a much, much stronger position,” Nuttall laments, in an interview earlier in the day Monday. Canada’s energy policy has been dictated by “eco-evangelism versus pragmatism” for too long, leaving the country exposed to U.S. economic leverage.
America’s Dirty Little Secret
For all the anti-oil rhetoric emanating from political podiums, the fact remains: the U.S. needs Canadian oil. “We are the safest, most reliable, and because of our energy policies, the cheapest source of oil for U.S. refineries,” Nuttall explains. The hard numbers back this up.
“There are refineries around Chicago and the Path 2 area that import in 3 million barrels per day of Canadian heavy oil via pipeline. They have no alternatives. They can’t truck it or barge it.”
Yet, despite this dependence, Canada has placed itself in a position where the U.S. can use energy as a geopolitical cudgel. Could this have been avoided? Had Canada diversified its export infrastructure, expanding pipeline capacity to the East and West Coasts, it would be dictating its own terms. Instead, we now face a painful lesson in economic servitude.
Inflation at the Pump—A Self-Inflicted Wound
Beyond the geopolitical chest-thumping, there’s a more immediate concern: rising gasoline prices. “We’re estimating about a 15 to 20 cent increase per gallon of gasoline,” Nuttall warns. That’s an inflationary gut punch for American consumers, directly contradicting the promises of those who campaigned on energy affordability.
“The belief that tariffs are not inflationary, and that it’s the producer, not the consumer, who eats the cost—those are mistaken beliefs,” Nuttall adds. The moment of reckoning is approaching. When the average American notices the extra hit at the pump, how long before political pressure mounts to reconsider these punitive measures?
The Drill, Baby, Drill Delusion
There’s been talk—more like wishful thinking—that American shale can swoop in and flood the market with cheap oil to counteract the effects of tariffs. Nuttall isn’t buying it.
“We’ve been exceptionally clear in our messaging that the ‘drill, baby, drill’ narrative was completely toothless,” he states.
Shale’s best days are behind it. U.S. producers are more interested in “maximizing free cash flow” and returning it to shareholders than launching a production boom. Meanwhile, OPEC+ has no incentive to respond to Trump’s demands for increased output.
“You can’t demand magically that shale producers rise production at a time when shale production grew at its slowest pace since its inception last year,” Nuttall points out. Saudi Arabia, still licking its wounds from past U.S. policy betrayals, won’t be rushing to open the taps either.
The Market’s Verdict
So where does that leave Canadian energy stocks? Ironically, despite the noise, Nuttall sees opportunity. “Canadian energy stocks are already discounting what we think is a worst-case scenario,” he explained.
Take Meg Energy, a company that’s been the target of U.S. hedge fund short sellers. “On a pre-tariff basis, we have the stock trading at a 12 to 15 percent free cash flow yield,” he noted. Even assuming the full impact of a 10% tariff, Meg’s free cash flow yield would still be an impressive 10%.
“We are getting all of the free cash flow in the form of share buybacks… They can buy back 60 percent of their stock over a five-year timeframe.” In other words, if the market realizes it’s overreacted, a potential tripling of the stock price isn’t out of the question.
A Wake-Up Call—If We Choose to Listen
This crisis should serve as a moment of clarity for Canada’s energy policymakers. “It is very clearly a strategic necessity,” Nuttall emphasizes, urging the government to prioritize new pipelines to the coasts.
But will they listen? Or will they continue to kneecap the industry, condemning Canada to perpetual economic subservience?
This is the cost of energy naivety. We had a chance to be masters of our own destiny, yet we willingly handed the keys to someone else. Now we get to live with the consequences.