Venezuela doesn’t have to displace Canadian oil. It only has to drive down the price U.S. refiners are willing to pay for it

Nine months ago, I warned that a revival of Venezuela’s oil industry could eventually threaten Canada’s dominant position as the largest supplier of crude oil to the United States.

At the time, that was largely a hypothetical concern.

It is becoming less hypothetical.

Venezuela is not about to replace millions of barrels of Canadian crude flowing south. But it does not have to. A significant increase in Venezuelan heavy crude could give U.S. refiners another source of supply, increase competition and put downward pressure on the price Canadian producers receive.

On Aug. 28, U.S. President Donald Trump announced a major deal giving the United States a significant economic interest in Venezuelan oilfields containing about 65 billion barrels of reserves.

For Canada, the significance is not simply that Venezuela possesses enormous oil reserves. It is the type of oil Venezuela produces and where that oil could eventually go.

Venezuela has the world’s largest proven oil reserves, estimated at more than 300 billion barrels, exceeding even Saudi Arabia. Much of it is heavy crude, similar to the oil produced from Canada’s oil sands.

That makes Venezuela a natural competitor for Canada in one particularly important market: U.S. refineries designed to process heavy oil. Many U.S. refineries were built or configured to process heavier crude, which means Canadian and Venezuelan oil can compete for the same refinery customers.

For years, Venezuela’s decline worked in Canada’s favour. Venezuelan production fell from about three million barrels per day in the late 1990s to less than 400,000 barrels per day in 2020. As Venezuelan crude disappeared from the U.S. market, Canadian producers helped fill the gap.

Canada exported about 4.3 million barrels of crude per day in 2025, with 3.9 million barrels, or about 90 per cent, going to the United States. Canada supplied more than 63 per cent of all U.S. crude imports. That dependence makes the American market overwhelmingly important to Canadian producers.

Venezuelan output has since recovered to about 1.25 million barrels per day.

But Canadian producers should not panic over Trump’s announcement. Geography and infrastructure remain Canada’s greatest advantages.

Canadian oil dominates refineries in the U.S. Midwest, where approximately 70 per cent of the crude being refined comes from Canada. Those refineries are connected directly to Western Canada through an extensive pipeline network.

Getting large volumes of Venezuelan crude from the Gulf Coast into those refineries would require billions of dollars in new infrastructure and years to build it.

The situation on the U.S. Gulf Coast is different. Canadian oil accounts for about five per cent of crude processed there, compared with approximately 70 per cent in the Midwest. Gulf Coast refineries have also historically processed Venezuelan heavy oil. If Venezuelan production rises significantly, those refineries provide an obvious destination.

That is where the more immediate threat to Canada lies.

More Venezuelan heavy crude entering the Gulf Coast could put downward pressure on the price American refiners are willing to pay for Canadian heavy oil. That matters because Canadian heavy crude already sells for less than benchmark U.S. oil, meaning a wider discount translates directly into lower revenues for Canadian producers. Charles St-Arnaud, chief economist at Servus Credit Union, estimates that every additional dollar of discount on Canadian heavy oil reduces Canadian oil revenues by about $2 billion annually.

Venezuela therefore does not have to replace Canadian oil to hurt Canadian producers. It merely needs to provide American refiners with another source of heavy crude.

The question now is how quickly Venezuela can recover enough production to compete seriously with Canada. Washington is now actively encouraging investment in Venezuelan oil, and significant amounts of money could be directed toward rebuilding the country’s deteriorated production infrastructure.

There are still major obstacles. Venezuela’s oilfields, pipelines and supporting infrastructure have suffered from years of underinvestment. Raising production by one or two million barrels per day cannot happen overnight.

Canada therefore has something extremely valuable: time.

The threat is not immediate, but it is real, and Canada would be foolish to wait until Venezuelan production fully recovers before responding.

The question is how Canada uses that time. Canada has already begun reducing its dependence on the U.S. market. The Trans Mountain Expansion, completed in 2024, nearly tripled capacity on the pipeline system between Alberta and the Vancouver area, giving Canadian producers significantly greater access to Pacific markets.

West Coast exports to China and other Asian markets have consequently become much more important. Demand for Trans Mountain capacity is strong, and the company is pursuing projects that, subject to regulatory approval and final investment decisions, could increase the system’s capacity from about 890,000 barrels per day to 1.19 million barrels per day.

But further reducing Canada’s dependence on the U.S. will require even more export capacity. Alberta and Ottawa are now advancing another proposed West Coast pipeline. The federal government says it intends to give notice by Oct. 1 if it plans to designate the project as being in the national interest.

The timing matters.

Grant Sprague, a consultant and former Alberta deputy energy minister, summed up the challenge: “The United States is looking for a diversity of sources. That’s OK. We’re (also) thinking of a diversity of markets,” he said.

Neither development necessarily means the Canada-U.S. energy relationship is about to collapse. The two countries have spent decades building an integrated oil market supported by pipelines, refineries and geography. Venezuela cannot easily duplicate that infrastructure.

But Canada’s comfortable position should not be mistaken for a permanent one.

Nine months ago, Venezuela represented a possible future challenge to Canadian oil. Today, that challenge is beginning to take shape.

The question is whether we use that time to reduce our dependence on a single dominant customer before Venezuelan competition starts costing Canadian producers.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.