U.S.-Canada Energy Alliances and the Revival of Keystone XL: Strategic Infrastructure and Policy Alignment Under U.S. Leadership

The revival of the Keystone XL pipeline has emerged as a focal point in the evolving U.S.-Canada energy alliance, reflecting broader strategic efforts to align infrastructure development with economic and energy security goals. Under the leadership of U.S. President Donald Trump, who has consistently championed the project, recent diplomatic and policy shifts suggest a renewed push to resurrect the pipeline, while also expanding collaboration on clean energy and critical mineral supply chains. This analysis explores the interplay between political momentum, regulatory challenges, and long-term energy strategy, offering insights for investors navigating this dynamic landscape.

The Keystone XL Revival: Political Momentum and Tariff Leverage

The Keystone XL pipeline, canceled by former President Joe Biden in 2021, has regained attention following a high-stakes meeting between U.S. President Donald Trump and Canadian Prime Minister Mark Carney in early 2025. According to a Bloomberg report, Carney raised the prospect of reviving the pipeline as part of broader energy cooperation discussions, while Trump was described as "very receptive" to the proposal. This alignment is not coincidental: Trump has long framed the pipeline as a symbol of U.S.-Canada economic partnership, even threatening to impose a 25% tariff on Canadian goods in 2024 to pressure cooperation, as detailed in a Newsweek article.

The pipeline's revival is also tied to Trump's pledge to reduce U.S. tariffs on Canadian steel and aluminum, currently set at 50%, as outlined in a U.S.-Canada joint statement. For Canada, which relies heavily on the U.S. as its primary energy export market, this tariff relief is critical. Alberta Premier Danielle Smith has publicly endorsed the project, arguing it "should have never been cancelled," and industry stakeholders remain cautious. Former TC Energy executive Dennis McConaghy noted that companies are hesitant to invest due to the risk of permit denials and political reversals.

Strategic Infrastructure Beyond Keystone XL: Clean Energy and Critical Minerals

While the Keystone XL debate dominates headlines, the U.S. and Canada are deepening their energy alliance through initiatives that transcend fossil fuels. In May 2024, both nations renewed the Canada-U.S. Energy Transformation Task Force (ETTF) for an additional year, focusing on clean energy innovation, grid resilience, and critical mineral supply chains. This collaboration includes co-investments in Canadian critical mineral projects, such as Fortune Minerals and Lomiko Metals, with U.S. Department of Defense funding complementing Canadian support.

A key pillar of this strategy is the development of North American nuclear energy capabilities. The U.S. and Canada have committed to a multilateral pledge to mobilize $4.2 billion in government-led investment for nuclear enrichment and conversion capacity over three years. This aligns with Canada's Major Projects Office, which is advancing initiatives like the Darlington New Nuclear Project-a first-of-its-kind small modular reactor (SMR) expected to power 300,000 homes. Meanwhile, the U.S. has streamlined cross-border energy permitting through the Promoting Cross-Border Energy Infrastructure Act, which replaces the presidential permit process with a faster, FERC- and DOE-led system.

Legal and Environmental Challenges: A Test of Policy Resilience

The revival of Keystone XL faces significant hurdles, including expired permits and opposition from environmental groups. However, the legal landscape has shifted in favor of U.S. climate policy. In July 2024, an international tribunal dismissed TC Energy's $15 billion lawsuit over the pipeline's cancellation, ruling that the Canada-U.S.-Mexico Agreement (CUSMA) no longer allows investor-state dispute settlements (ISDS) between the two nations, as noted by The Conversation. This decision reinforces the U.S. government's ability to prioritize climate goals without facing financial liability-a critical precedent for future energy projects.

Environmental concerns remain a wildcard. While Trump has downplayed climate risks, Canada's Canada Energy Regulator (CER) enforces stringent environmental standards, prolonging approval timelines for federally regulated projects. Investors must weigh these regulatory complexities against the political will to expedite infrastructure development.

Investment Implications: Balancing Risk and Opportunity

For investors, the U.S.-Canada energy alliance presents both opportunities and risks. The potential revival of Keystone XL could unlock $33 billion in private-sector capital for projects like LNG Canada Phase 2, which aims to double liquefied natural gas production, according to the Major Projects Office. However, the pipeline's uncertain regulatory status and environmental opposition necessitate a cautious approach.

Conversely, the shift toward clean energy and critical minerals offers more stable long-term prospects. The ETTF's focus on decarbonizing industries like steel and aluminum-key materials for renewable energy systems-positions North America to compete in a global green economy. Similarly, advancements in SMRs and critical mineral supply chains could attract capital from sectors seeking to diversify away from geopolitical risks in Asia and Russia.

Conclusion: A Strategic Partnership in Flux

The U.S.-Canada energy alliance is at a crossroads, balancing Trump's revival of traditional infrastructure with a broader commitment to clean energy and supply chain resilience. While the Keystone XL pipeline remains a politically charged symbol, the deeper collaboration on critical minerals, nuclear energy, and regulatory harmonization signals a strategic alignment that transcends individual projects. For investors, the key will be to navigate short-term political uncertainties while capitalizing on long-term trends in decarbonization and energy security.