Ten years ago, officials of the US government would
have thought twice about imposing sanctions on
three of the world’s top 12 oil-producing countries.
They would have worried about oil supply. Markets, similarly fretful, would have become nervous.
The mere possibility of retaliation in the oil market
would have increased prices.
When the US this month toughened sanctions
on countries with combined output of 17 million
b/d of crude oil, supply drew scant attention. Markets shrugged. Clearly, concern about oil supply
does not constrain US decisions in international
affairs to the extent it once did.
Officials from the US, Canada, and Mexico
should consider this new geopolitical latitude
when they renegotiate the North American Free
Trade Agreement—starting as early as Aug. 16.
Complacency and desperation
Complacency is never in order. But the sanction targets—Russia, Iran, and Venezuela—need
desperately to sell oil and would hurt themselves
more than others by cutting production for political reasons. Their desperation results from prices
stubbornly low in a market sated by development
of unconventional resources in the US and Canada.
In the past decade, US production of crude oil has
jumped to 9. 2 million b/d from 5 million b/d, Canadian output to 3. 8 million b/d from 2. 6 million b/d.
Production in Mexico has fallen by 1 million b/d to
2.1 million b/d, but prospects there are brightened
by fiscal reform and encouraging bid rounds.
Well-developed and expanding energy trade
among the three countries facilitates the net production rise and amplifies the geopolitical benefits. Further gains in output of crude oil, natural
gas, and gas liquids soon will make the trilateral
bloc a net energy exporter.
Testifying last month before the US Senate
Committee on Energy and Natural Resources,
Manhattan Institute Senior Fellow Mark P. Mills
underscored the global significance of this devel-
opment. He noted that among the world’s five ma-
jor economic regions, accounting for three fourths
of global gross domestic product, China, Europe,
Japan, and India all are net and rising importers of
petroleum and natural gas. “Only North America
is essentially energy self-sufficient and moving
rapidly towards becoming a net exporter,” he said.
“…Until very recently, the Middle East and Russia
were the primary sources of new marginal supply
in world energy trade.”
The extent to which Mexico, Canada, and the
US benefit from their growing prominence as
energy suppliers, individually and collectively,
depends greatly on the extent to which they con-
tinue to trade energy freely. Logistical efficiencies
related to trade increase options for regional ex-
ports and lower costs of resource development,
boosting production. Much, therefore, is at stake
in NAFTA renegotiation.
Although US President Donald Trump has retreated from the protectionist rhetoric of his campaign, he told Congress on May 18 that he wanted
to modernize NAFTA, initiating a 90-day comment period. On July 17, the Office of the US Trade
Representative published objectives for NAFTA
renegotiation, a step required 30 days before talks
can begin. The objectives cover a range of subjects
and seek, according to a press statement, “a much
better agreement that reduces the US trade deficit
and is fair for all Americans by improving market
access in Canada and Mexico for US manufacturing, agriculture, and services.”
The American Petroleum Institute, Asociacion Mex-
icana de Empresas de Hidrocarburos, and Canadi-
an Association of Petroleum Producers responded
with a position paper focusing on economic issues
important to oil and gas. The statement warns, “Any
changes that disrupt energy trade across our North
American borders, reduces investment protection,
or reverts to high tariffs and trade barriers that pre-
ceded NAFTA could put at risk the tens of millions
of jobs that depend on North American trade and
interdependent energy markets.”
NAFTA can be improved. Market and techno-
logical changes occurring since the agreement’s
implementation 23 years ago necessitate updates
at least. But change must be prudent. Mistakes
would have geopolitical as well as economic con-
“Do no harm,” implores the joint industry statement. That’s good advice.
NAFTA and energy trade