BY ROBERT MURRAY
As the United States government enters its period of sequestration and embarks upon substantial cuts to the federal budget, Canadians are left to wonder just what the impact will be on Canada’s economy, and more importantly, on the prospects of the American government approving the Keystone XL pipeline project.
The sequestration requires that over $80 billion be cut from the American federal budget and infrastructure projects will likely be among those delayed or halted entirely.
The Keystone pipeline is essential to Canada, both economically and politically. Canada’s economic prosperity is highly dependent on its ability to export natural resources to large trading partners.
Oil is very much at the heart of this economic strategy and recent events have reinforced an integral point: in order for oil to be profitable, the Alberta and Canadian governments must be able to sell and move it.
Without new pipelines, the risk of not being able to get the oil to market becomes more and more real. Furthermore, the oil industry plays a central role in Canada’s foreign policy as it is an important component in attracting foreign investment to the Canadian economy and a successful Canadian oil industry breeds consumer confidence and home and abroad.
The delay in the approval for the Keystone pipeline was not entirely negative, however, especially in the Alberta context.
For far too long the Alberta government has relied almost solely on the oil industry for its prosperity and the current turmoil surrounding Alberta’s provincial budget is a perfect example of why economic diversification is vital to a sustainable economy.
There is no doubt that resource extraction and agriculture are Alberta’s economic lifeblood, but the current fiscal crisis the province is facing is greatly exacerbated by a government not doing a good enough job of expanding the provincial economy in ways that would mitigate budgetary disaster in the event that oil markets slowed.
Alberta’s current financial instability – the government made a critical error in overestimating oil revenues, and now faces a multi-billion dollar shortfall – does no favours to the prospects for the Keystone pipeline being approved, and the province’s leaders face significant questions about the its handling of the oil industry and fiscal projections.
Alberta now has the opportunity to reflect on its economic mismanagement, although unfortunately it comes far too late to save Albertans and Canadians from at least a short-term economic hit.
The reasoning behind a delay in Keystone’s approval is far more political than it is economic or environmental.
There is little doubt the Obama administration will sanction the project, but it cannot be done so quickly as to sacrifice the Democratic Party’s green base. Its sole reason for delaying the project was political calculation as it works to appease the environmental elements of the Democratic Party while determining how to best approve such a major project in the midst of sequestration and ongoing budgetary brinksmanship with Congress.
But conspiracy theories about environmental disaster were recently set aside by a U.S. State Department report that claimed the pipeline project poses no significant environmental risk, thus providing another pivotal element in the American government’s path to approving the project.
Regardless of economic circumstances in the United States, Canada or Alberta, the Keystone pipeline is bound to become a reality, and rightfully so. The benefits of the project far outweigh any over exaggerated environmental arguments by the green movement and will play a significant role in the economic and foreign relations between the United States and Canada.
Keystone is a matter of when, not if.
Robert Murray’s column is distributed through www.troymedia.com.