These are volatile times for the stock market, especially for Canadian energy stocks. Trump tariffs have been a topic of discussion in the Canadian government. Moreover, Canada will be getting a new Prime Minister. According to the latest update, the U.S. has paused tariffs on some Canadian imports, but the pause does not fully cover energy products. This means a 10% tariff came into effect in March. All this brought Enbridge (TSX:ENB) stock into the limelight.
Enbridge at the centre of U.S.-Canada oil trade
It is no secret that Canada exports around 90% of its crude oil to the United States. Enbridge’s pipeline infrastructure facilitates about 40% of this export. In this trade, the Enbridge-operated Mainline network is North America’s largest crude oil pipeline network. Can a tariff reduce the volume of oil exports to a level that makes a difference in Enbridge’s toll money?
On this, Enbridge CEO Greg Ebel said, “I would say unless it’s a very high tariff and on a prolonged basis, we just don’t see significant changes on that front.”
This remark is supported by Enbridge’s robust business model and the two countries integrated energy systems. To give you a brief idea, Canada exports approximately 4 million barrels per day of heavy crude oil through pipelines, making transmission cost-effective.
Canada’s dependence on the U.S.: If Canada wants to export its oil to other countries, it only has the Trans Mountain pipeline system. This system accounts for only 9% of its total crude exports. Even with this pipeline system, Canada has to load oil onto tankers and ship them overseas, increasing the transmission cost.
The U.S. dependence on Canada: While the United States can generate sufficient oil for its use, 20–25% of its refineries are equipped to refine Canada’s heavy oil. Converting these refineries to refine U.S. light oil will require significant capital expenditure. Moreover, the U.S. will have to forego the export of light oil produced from the Permian Basin and reduce the trade deficit with other countries.
The trade web is so entangled that pulling one thread will affect other threads.
Outlook for Enbridge Stock in 2025
It is not the first time America has levied tariffs on Canada. Unless there is an outright ban or the tariff war escalates to several years, oil volumes may not be much affected. As Enbridge earns toll money, it is not directly affected by oil prices. The tariff will first hit the oil price.
While Enbridge’s earnings growth could slow, they will be higher than in 2024. The company has increased its quarterly dividend per share by 3%, and that is unlikely to change for the remainder of 2025 as the company declares the dividend based on the previous year’s distributable cash flow (DCF).
Enbridge even sustained it during the pandemic when oil volumes nosedived, thanks to its low-risk business model. Enbridge’s stock price could fall below $50 by mid-2025 because of cyclicality. That could be a good time to buy the stock and lock in a 7% dividend yield. As for Enbridge’s dividends, it could continue to pay them throughout the tariff war.
Investor takeaway
Long-term investors need not get swayed by geopolitical tensions. Enbridge has been operating for more than 70 years and has thrived in worst crises. However, one should not rule out the possibility of a supply chain disruption and stay updated on how the oil trade unfolds.
