- The Washington Times - Friday, February 3, 2012

President Obama recently decided to reject TransCanada Corp.’s proposal to build the Keystone XL oil pipeline. While it may have warmed the cockles of the hearts of his Hollywood buddies, environmentalists and various financial supporters, it could cause a devastating political and economic rift with the Canadian government.

Yes, the U.S. is a superpower, whereas Canada is a middle power. The U.S. dollar is a major currency, whereas the Canadian dollar is a decent-sized currency. The American financial markets have long had a direct impact on the global economy, whereas the Canadian financial markets have never been regarded in such an esteemed position.

But if the U.S. economy is going to recover properly, it needs to improve on both the domestic and international fronts. Canada plays a significant role in the latter category because it has long been a major ally and trading partner. It’s the world’s 10th-largest economy measured by gross domestic product, according to the International Monetary Fund and World Bank; has one of the highest levels of economic freedom; and is rich in terms of natural resources. Canada also is on more solid economic ground these days because it didn’t get too tangled up in the trappings of the subprime mortgage crisis and global financial meltdown.

Here’s the real kicker: Canada is not only the world’s fifth-largest energy-producing country, it’s also the United States’ largest supplier of oil. That’s right, those crazy Canucks who play hockey, live in igloos, drink beer and eat back bacon provide more heat for your homes than anyone else. In particular, the Keystone pipeline was going to transport synthetic crude oil and diluted bitumen from Alberta’s Athabasca oil sands to states including Illinois, Oklahoma and Texas. It would have earned both countries a great deal of money, increased business opportunities and helped create thousands of new jobs.

Instead, Mr. Obama turned off the Canadians with a simple flick of the political switch.

To be sure, Canada and the United States have had bilateral trade disputes on agriculture, fishing and automobiles in the past. All of them have been resolved through trial, error and extensive negotiations. It’s possible, therefore, that Mr. Obama, if re-elected, could sign a new agreement with Trans-Canada in 2013 or 2014 - or that a new GOP president could resolve this problem immediately.

It could be different this time, however. Canada may decide against fixing this problem and take its ball elsewhere to more willing customers.

There already are early signs Canada is looking at other established and emerging financial markets. For instance, the Enbridge Northern Gateway Project would build a twin pipeline from Bruderheim, Alberta, to Kitimat, British Columbia - with crude oil heading off to profitable Asian markets such as China. Meanwhile, Canadian Prime Minister Stephen Harper spoke in Davos, Switzerland, in favor of signing new trade agreements in Asia and Europe. Hence, trade diversification certainly seems to be on the agenda for the Harper Conservatives.

It doesn’t have to stop there. Icy relations between Canada and the United States could potentially affect other political and economic positions. Here are three possible scenarios:

c Canada recently agreed to Mr. Obama’s request to take back accused war criminal Omar Khadr later this year. Mr. Harper could decide to renege on this request and tell the United States to keep the prisoner at Guantanamo Bay. He certainly has enough time to do it.

c Canada is one of the largest suppliers of agricultural products to the United States. The Harper government theoretically could decide to decrease agricultural exports to the Americans and increase it to other significant partners, such as Europe and East Asia. Remember, there is a high demand for wheat and other grains across the world.

c The North American Free Trade Agreement plays a major role in Canada-U.S. economic relations. If the European Union and Asia-Pacific Gateway turn into more profitable economic zones for Canada, NAFTA could be reduced or left behind.

Obviously, I’m not suggesting Canada is planning to take any drastic measures with respect to long-standing relations with the United States. But Canada has become more economically independent under the Harper Conservatives. The global marketplace affords many new opportunities for the Canadian prime minister to build trade agreements and diversify economic agreements and financial partnerships.

Mr. Obama’s decision to postpone Keystone may have been for the purpose of shoring up political and financial support for the 2012 election, but he’s taking a huge risk in destroying relations with Canada on a permanent basis. My country is a lot smaller than yours, but on the energy issue, we are way ahead of the curve.

Michael Taube is a former speechwriter for Canadian Prime Minister Stephen Harper.