US and Canada accelerate Keystone XL revival as Iran crisis exposes crude transport bottlenecks
Partial pipeline resurrection targets 550,000 bpd capacity amid Strait of Hormuz closure and $100+ oil—framed as energy security infrastructure, not climate policy reversal.
The Trump administration confirmed on 25 March it is coordinating with Canada on permits for a partial Keystone XL revival, leveraging dormant pipeline assets to address North American crude transport constraints exposed by Iran’s closure of the Strait of Hormuz.
The proposal—branded Prairie Connector by developer South Bow and Bridger Pipeline—would move 550,000 barrels per day from the Canada-US border in Montana to Guernsey, Wyoming, increasing Canadian crude exports to the US by more than 12%, according to BNN Bloomberg. The move comes as Brent crude trades at $102.47 following a peak of $126 during the crisis, and refinery utilization sits at 91.4% against declining US capacity.
“Over the last two weeks, with Iran closing the Strait of Hormuz, it has truly never been clearer that oil and gas from reliable producers like Canada are what our allies need,” Canadian Natural Resources Minister Tim Hodgson said at CERAWeek in Houston.
President Biden cancelled the original Keystone XL permit on his first day in office in January 2021, halting a project that had become a focal point of US climate policy debates. The 1,200-mile pipeline was designed to carry 830,000 bpd of Alberta crude to Nebraska, connecting to existing infrastructure serving Gulf Coast refineries. Developer TC Energy abandoned the project in June 2021 after spending $15 billion on construction. South Bow—spun out from TC Energy in late 2023—now controls the dormant Canadian permits and partially completed pipeline segments that form the basis of the Prairie Connector proposal.
Supply shock reshapes infrastructure calculus
Iran’s closure of the Strait of Hormuz on 28 February has blocked approximately 20 million barrels per day—roughly 20% of global seaborne oil trade—creating the largest supply disruption since the 1970s embargo, per Dallas Federal Reserve analysis. Gulf countries have cut production by at least 10 million bpd, driving global supply down 8 million bpd in March, according to the International Energy Agency.
The crisis has embedded an $18 per barrel geopolitical risk premium in oil prices, Goldman Sachs estimated on 1 March. That premium compounds existing North American infrastructure constraints: US refinery capacity is forecast to fall below the 2023 level of 18.06 million bpd this year due to closures, per Energy Information Administration data, while utilization rates remain elevated.
“The policy environment in North America has been far more constructive,” South Bow CEO Bevin Wirzba told analysts on 6 March, per Reuters. “The current war in Iran as well as the ongoing conflict in Ukraine emphasize the need for Energy Security.”
Regulatory pathway and political framing
South Bow submitted its Prairie Connector proposal to Montana’s Department of Environmental Quality on 28 January, according to The Globe and Mail. The project requires a new presidential permit for the cross-border segment—the same regulatory hurdle that sank the original Keystone XL.
A White House official confirmed the administration’s “entire energy team has been working diligently with our partners in Canada to work through the permitting process,” Reuters reported on 25 March. The framing marks a deliberate shift from climate-policy battleground to strategic infrastructure response.
“Those realities are a great backdrop for us to provide a solution that increases energy security in North America between the great resource up in Canada to the strong demand markets in the U.S. Gulf Coast.”
— Bevin Wirzba, CEO, South Bow
Canada is positioning the pipeline as wartime pragmatism rather than fossil fuel expansion. Hodgson’s CERAWeek remarks emphasized “reliable producers” and allied energy security—language designed to navigate domestic climate constituencies while exploiting the geopolitical opening created by Iran’s supply shock.
Capacity constraints meet crude availability
The pipeline targets a specific infrastructure gap: moving Western Canadian crude to Midwest and Gulf Coast refineries running near maximum utilization. With US refining capacity declining and demand robust, transport bottlenecks create regional price distortions that favor integrated pipeline systems.
The 550,000 bpd capacity represents roughly 3% of current US refinery throughput, but addresses marginal supply constraints that become acute during geopolitical disruptions. Alberta’s oil sands production—largely heavy crude suited to complex US refineries—faces persistent takeaway capacity limitations that the original Keystone XL was designed to resolve.
- North American crude self-sufficiency gains tactical appeal as Middle East supply routes remain vulnerable to military escalation
- Inflation hedge: domestic pipeline capacity reduces exposure to seaborne crude premium and Strait closure risk
- Refinery utilization ceiling: without new crude transport infrastructure, high utilization rates become supply bottlenecks during demand spikes
- Political viability window: war-driven energy anxiety creates permitting pathway unavailable during peacetime climate debates
What to watch
Presidential permit timing will signal administration priority—expedited review suggests genuine supply urgency, while extended process indicates political hedging. South Bow’s ability to secure binding shipper commitments during its open season (launched 11 March) will determine commercial viability independent of policy support.
Monitor refinery utilization trends through April: sustained rates above 90% with constrained crude imports validate the infrastructure bottleneck thesis. Watch for Canadian regulatory approvals in parallel—Alberta and federal permits must align with US timelines to maintain momentum.
Oil market technicals matter more than headlines: if Brent settles below $95 for 30 consecutive days, the geopolitical premium fades and project economics weaken. Conversely, sustained $100+ crude strengthens the case that North American transport capacity is strategic infrastructure, not discretionary energy policy.