POLCZER: Time for Smith — not Ottawa — to fight fire with fire on Trump tariffs

We all know there’s only one to deal with a bully.

And that’s exactly what US president Donald Trump, the self-styled ‘master of the deal’ is and always been. A brow beater blusterer in a tailored suit.

Despite all of Alberta Premier Danielle Smith’s kind words and whispered sweet nothings to keep him from implementing punitive tariffs on 4.3 million barrels per day of Alberta’s oil and gas, no one should be surprised he went ahead and did it anyway.

Smith wrongly believed diplomacy would prevail and cooler heads would prevail. She was wrong. 

We’ve all heard of China’s ‘Wolf Warrior’ diplomacy and how it doesn’t work. Well, neither does ‘Let Sleeping Dogs Lie’.

For all the talk that it could have been worse — that 10% is better than 25% — consider that the US is already gaining 15%-20% on the differential between light and heavy oil. So, the tariff IS essentially 25%-30% after the latest hit on Friday.

But that doesn’t mean the Smith doesn’t have some weapons, to parse a double negative. (Which is something Trump does understand.)

That’s because Trump doesn’t realize that he’s actually the one over the proverbial barrel, at least when it comes to oil.

Of the 60% or so of US supply he imports from Canada, about 80% goes to a handful of refineries in the Midwestern states of Michigan, Ohio and Illinois — the ones he narrowly won to take the election.

The other 20% goes to Texas, which is as solid a red Republican state as there is. And the Tejanos are not going to take kindly to paying more for their tried-and-true Canadian crude when they've spent hundreds of billions building specialized refineries to run it.

Trump is absolutely correct when he says former president Joe Biden has drained the US strategic petroleum reserve to its lowest in a generation, endangering US energy security. Which is another way of saying there is no wiggle room to play with supply or demand in the areas likely to be hit hardest by the tariffs. 

Substituting those Canadian barrels with cheaper oil from Venezuela, Africa or even the Saudis, is going to be difficult, expensive and unlikely, given a lack of pipelines going from the Gulf Coast up into Michigan or even the West Coast — they all happen to be Canadian.

And while it’s true the US has a lot of oil, most of it is in places like Alaska where it isn’t easy — or cheap — to get. Or in south Texas where it would — GASP — have to traverse the Panama Canal to get to the western half of the country.

So while Smith is quite right that Ottawa shouldn’t be the one turning the taps on Alberta’s oil, she certainly can slow it to prop up the price. 

In fact, both Rachel Notley and Jason Kenney have each curtailed supplies to bolster those price differentials when they blew out to 50% or more. At some point it’s cheaper just to leave it in the ground, especially if the Yanks are making more off it than we do. 

It’s something within Alberta’s — not Ottawa’s — power to consider.

Smith wouldn’t have to stop the flow entirely — that would cause full-blown oil shortages in major US refineries and lineups for American motorists, which would indeed be self defeating, if not gratifying — but just slow it up by 10% or so, or half a million barrels a day, to cause prices to spike in those key battleground states and offset Trump’s tariff ambitions.

And according to Dr. Barry Cooper, a similar strategy was employed by Peter Lougheed to counteract the impact of what amounted to a tax on Alberta oil during the National Energy Program (NEP). It’s the one thing Smith has most easily at her disposal, and probably the most effective thing she could do.

Another Lougheed-era tool she can use is the Alberta Royalty Tax Credit (ARTC) to compensate oil producers affected by Trump’s 10% tariffs dreams.

For instance, she could tack another 10% onto Alberta’s royalties — which amounts to a countervailing duty — and then rebate it back to oil producers in the form of a tax credit. And keep on cranking it up dollar-for-dollar if The Donald decides to retaliate -- which he no doubt will -- until he backs down. Again, he will. Eventually.

That’s essentially what the Saudis do to Western countries that make more off their oil from sales taxes and surcharges than they do. And they're not being tariffed the way we are.

That would force him Trump back to the bargaining table when his domestic refiners have had enough. It’s guaranteed to happen before the mid-term election.

She could also force other provinces like Ontario and Quebec to pay the extra royalty, and only offer relief when they finally approve Northern Gateway and Energy East.

Not only would it send the message that the status quo is unacceptable, but that it can’t be tolerated.

Everyone knows bullies — whether in Ottawa or Washington —  are all wind, fight and bluster. But when push comes to shove they are frankly a bit scared if threatened by a smart counter offensive and show of force. 

And that’s exactly what Alberta needs now. Not sheep in wolf's clothing.