Oil price slump threatens Canada’s finances

Falling oil revenues could squeeze Alberta’s budget and the ripple effects will be felt across Canada

Interview requests

Falling oil prices are threatening to blow a hole in Canada’s finances, with Alberta facing the steepest losses. A global glut of crude, combined with economic jitters in the U.S. and China, is driving prices below the levels needed to balance Alberta’s budget—and the damage won’t stop there.

Last week, oil prices fell to a three-week low. Brent crude settled at US$68.44 a barrel, down 1.1 per cent, while U.S. West Texas Intermediate closed at US$65.16, down 1.3 per cent. For the week, Brent slipped one per cent and WTI three per cent, the lowest settlement levels since early July, according to Reuters.

The reasons are clear enough: oversupply, weak global demand, a strengthening U.S. dollar and geopolitical uncertainty. OPEC+ appears unwilling to cut output at its upcoming Joint Ministerial Monitoring Committee (JMMC) meeting, with four anonymous delegates telling Reuters the group will likely hold the course on production. The JMMC, which meets every two months, can recommend changes to output policy but rarely moves without consensus from OPEC’s heavyweights.

Washington, meanwhile, is sending conflicting signals. In a rare shift, the U.S. is preparing to grant limited authorizations to oil companies with assets in Venezuela, starting with Chevron, U.S. media outlets reported. These permits would allow them to operate under restrictions and swap oil in global markets. At the same time, U.S. President Donald Trump has floated a threat to impose 100 per cent tariffs on countries that buy Russian crude unless Moscow reaches a peace agreement with Ukraine. He originally gave Russia 50 days but said on July 28 during a joint appearance in Scotland with U.K. Prime Minister Keir Starmer that he intends to cut that timeline to just 10 to 12 days, according to the Financial Times.

Analysts are skeptical. His earlier threats against Venezuelan oil buyers, particularly China, achieved little, and a full ban on Russian crude could send shockwaves through the global economy.

Fernando Ferreira, director of geopolitical risk service at consultancy Rapidan Energy Group, warned that imposing tariffs could be disastrous: “If you’re willing to go with the nuclear option by removing 4.5 plus million barrels a day from the market, and you’re willing to cut off commercial ties with other countries because they’re importing Russian oil, you’re going to risk massive oil price spikes and a meltdown of the global economy.”

At the same time, other major producers are adding barrels. Iraq reported nearly 99 million barrels of crude exports in June, generating US$6.7 billion in revenue, according to Iraq’s state-run Oil Marketing Company. Iranian exports have also climbed, reaching more than 1.6 million barrels a day, the highest since 2018, the Tehran Times reported, with China as its main buyer under creative pricing and payment arrangements. Supplies, in short, are plentiful.

For Alberta, that’s bad news. Fraser Institute analyst Tegan Hill estimates in a recent report that every US$1 drop in the price of oil costs Alberta’s treasury about $750 million in lost revenue.

With prices already dipping below the $68 per barrel assumption in the provincial budget, Premier Danielle Smith’s government is staring down a projected $5.2 billion deficit for 2025-26, according to Alberta’s most recent budget, with more red ink to follow over the next two years.

Alberta’s oil wealth has long been a pillar of Canada’s economy, not only funding provincial services but also contributing heavily to federal revenues through taxes and equalization. When Alberta’s revenues shrink, it isn’t just a provincial problem—the entire country feels the strain.

Shrinking oil revenues could force Alberta to cut spending on health care and education or raise taxes, with ripple effects on jobs, services and Canada’s overall growth. The province is once again reminded that its finances remain hostage to the boom-and-bust cycles of global energy markets.

There’s no quick fix. Oil markets are cyclical, and no government policy can insulate a resource-heavy economy from volatile global prices. But what’s clear is that Canada—and especially Alberta—is heading into rough fiscal waters.

Buckle up. The flight ahead could be bumpy.

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.