Concerns that the Canadian energy sector will take a major hit from newly unlocked  Venezuelan crude  are premature,  according to economists and energy industry analysts who see a more nuanced scenario playing out in the coming months.  

The debate comes after the U.S ousted Venezuelan President Nicolás Maduro in a daring military operation on the weekend, a move that many observers expect will pave the way for the lifting of sanctions on the country and the redevelopment of its oil industry.  

While the potential for increased supply competition is a reality, Rory Johnston, an oil market researcher and former economist at the Bank of Nova Scotia, said concerns that Canadian exports to the U.S. could quickly be replaced by Venezuelan oil are “deeply overdone.”  

“We’re not going to be left with a massive surplus of oil that we can’t do anything with, because as that price weakens, the incentive to buy it increases,” he said.  

Canada currently produces 5.5 million barrels per day, while Venezuela,  which has the largest known oil reserves in the world,  produces one million, down from the 2.5 million barrels it used to produce in the mid 2010s. The decline has been attributed both to mismanagement by the state-owned oil and gas company, Petróleos de Venezuela, and U.S. sanctions that have remained in place since 2017.  

Canada currently provides 63 per cent of total U.S. crude oil imports, with the majority sent to refineries in the U.S. Midwest. With an interwoven network of pipelines, this portion of Canada’s exports will be hard to replace, though analysts have noted Canada’s exports to the Gulf Coast could be vulnerable.  

But even if the 10 per cent of Canadian oil destined for Gulf Coast is replaced in the short term, there will be counterbalancing effects, according to Johnston.

“While there is this push factor …  at the same time, you have an incremental pull increase from Asia for our barrels to substitute the Venezuelan ones that were going to wherever they were going,” he said.  

Venezuela’s ability to increase production is also contingent on  American oil companies investing billions of dollars in the country’s ailing oil infrastructure.  

“Even if U.S. involvement in Venezuela translates into open season for its major oil firms, the outlook for oil production and investment faces significant economic and political challenges,” said David Oxley, chief climate and commodities economist at Capital Economics, in a note.  

A global oil market that is poised to enter a glut in 2026 creates another headwind, he said.

“Crucially, we already expect lower oil prices to drive a modest decline in domestic U.S. oil production into 2027, and so the broader backdrop is hardly conducive to large-scale investments in new high-cost wells in Venezuela,” Oxley said.  

The weekend’s events have reignited discussion about the need for Canada to diversify its oil export markets.  

“U.S. and Canadian oil infrastructure already has a strong hold on the U.S. market,” Scotiabank economist Derek Holt said in a note.  

“Nevertheless, the prudent thing for Canada to do would be to act with a greater sense of urgency in terms of building capacity to export oil to Asia (arguably ditto for Mexico).”  

According to the Energy Information Agency, Canada exports 4.5 million barrels of oil per day to the U.S., which represents 90 per cent of Canada’s total oil exports. Thanks to the Trans Mountain Expansion Project (TMX) coming online, the U.S. share of exports has declined from 97 per cent.  

On Monday, Alberta Premier Danielle Smith stressed the recent events have only emphasized the need for Canada to diversify more.  

Federal Opposition leader Pierre Poilievre, meanwhile, called on Ottawa to approve a new pipeline to the Pacific Coast.  

In Paris on Tuesday, Prime Minister Mark Carney said he remains confident in the competitiveness of Canadian oil against its Venezuelan counterpart.  

“Canadian oil will be competitive because it is low risk,” he said. “There’s been huge progress on getting down the costs, and low carbon, which is what the Pathways project carbon capture will bring.”  

Carney and Smith signed a memorandum of understanding in November that could pave the way for a new pipeline to the West Coast. So far, there is no private proponent for any project.  

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