Gary Mar: It's time for Canada to embrace what we do best to help ourselves and our partners
A global understanding has held firm for decades: whatever the conflict, critical waterways such as the Strait of Hormuz stayed open. That understanding, backed by international precedent, is now broken.
The ensuing geopolitical and economic crisis that has erupted proves that Canada needs to build up domestic production and diversify exports . The argument has been made time and again that this country should have a larger role to play in getting the world what it needs, but now it has become a strategic imperative.
Prior to the tolls and closures of the Strait of Hormuz, there was a longstanding global understanding that the right of free passage should be maintained for naturally occurring waterways. The Strait of Hormuz is the first, but it might not be the last, as similar threats have bubbled to the surface of economic passages in Yemen and Turkey.
In these challenging times, key Western Canadian industries are well-positioned to help alleviate some of those pressures. In particular, Canada’s energy sector has an opportunity to provide long-term relief as countries look for ways to manage these trade disruptions.
Two of Canada’s long-standing allies, Australia and the United Kingdom, are facing serious impacts. The U.K. has a contingency plan if fuel rationing becomes necessary, while Australia relies on Asia for roughly 70 per cent of its refined fuel, much of it shipped through the Strait of Hormuz.
Some countries may seek to expand trade during times of uncertainty, but others may choose to pull back. In 1975, the United States imposed a ban on most crude oil exports that remained until 2015. After the ban was lifted, exports jumped to the millions of barrels a day we see now from approximately 500,000 barrels.
The global demand for crude will only increase if any major oil-producing countries choose to restrict exports. Canada should be prepared to fill that gap for countries that rely on large-scale imports.
With 70 per cent of Asia’s crude oil coming through the strait, the region would benefit from greater access to Canadian energy. Supply pressures are already resulting in countries limiting exports of oil and related products. For example, South Korea has temporarily banned naphtha exports to protect domestic supply. Naphtha, a refined product, is essential to making plastic, solvents and some types of fuels.
For Asia, the U.K., Australia and Europe, Canada can be a reliable and stable supplier of crude for refining that does not rely on the strait or unpredictable regimes. But if you can’t move it, you can’t sell it. To be able to meet this need, Canada needs sufficient tidewater access to access these global markets.
Canada cannot solve these problems immediately, but we can reduce this vulnerability by ensuring our resources can get to those who need them.
Energy is only part of this story. Strengthening domestic food production and food manufacturing would allow Canada to increase agricultural exports and produce more food at home, reducing the reliance on imports. This would help stabilize costs for Canadian consumers and support food security abroad.
Farmers are already raising concerns about rising input costs at the start of the growing season despite Canada being a major producer of potash and nitrogen, essential ingredients in fertilizer. These costs will reach consumers, as we are already seeing at the pump and eventually in grocery stores and in the purchases of other goods using materials such as plastics and critical minerals.
The time for talk is over. Canada has already increased exports to Asia with the twinning of the TMX pipeline and the opening of LNG Canada’s port. Now, we need to put shovels in the ground on major projects to modernize and expand infrastructure, move products toward new markets and opportunities and assert sovereignty over Canadian energy, agriculture and critical minerals.
That means not just moving raw resources, but processing and upgrading them here at home and capturing more value for Canadians while making our exports more indispensable to our partners who need them. If that doesn’t happen, Western Canadians will need to start looking for answers as to why.
What does Canada do best? We mine, we extract and we have commodities the world needs. We should embrace that role. It would strengthen our country and provide more stability the world economy desperately needs.
Gary Mar is chief executive of the Canada West Foundation.