THE BLOG
01/26/2015 08:44 pm ET Updated Mar 28, 2015

Blame Oil: Opportunistic Thinking Amid the Oil Price Collapse

The wisdom of Winston Churchill, who once quipped that you should never let a good crisis go to waste, clearly hasn't been lost on federal Finance Minister Joe Oliver, who's already made considerable hay out of falling oil prices.

Mr. Oliver's finance department won't table a budget until April, due to the uncertainty created by lower crude prices, which have thrown the budgeting process into limbo -- or at least that's the claim. Even though commodity prices matter much more to the provinces, which are where oil and gas royalties accrue, Mr. Oliver knows a gift horse when he sees it. Ottawa's oil price assumptions are hardly relevant enough to most federal revenue projections to necessitate such a delay, but so it goes. If eventually it turns out the promised budget surplus will turn into a deficit or provincial transfer payments will need to be cut, it's safe to say that oil will be the first place Mr. Oliver looks when it comes time to assign blame.

Over at the Bank of Canada, the same type of opportunistic thinking is just as apparent. If lower oil prices can be used as a convenient reason to reshape fiscal policy, why shouldn't monetary policy follow suit as well? After all, the Bank of Canada has had plenty to say about the country's oil ambitions in recent years.

Before moving across the pond, then-Bank of Canada Governor Mark Carney declared in a number of headline-making speeches that a mega-expansion of the oil sands was "unambiguously good" for the entire Canadian economy. (His view on carbon emissions, incidentally, seems to have changed with his new assignment.) It stands to reason, then, that his successor, Stephen Poloz, would feel confident enough to declare that falling oil prices are unequivocally harmful to Canada's economy -- bad enough, in fact, that lower prices just commanded a surprise cut to interest rates.

The claims of both governors deserve a closer look.

More than half a million Canadian manufacturing workers who lost jobs due in part to a soaring petrocurrency would likely beg to differ with Mr. Carney's view of what "unambiguously good" actually looks like on the ground. These days, you could also ask any of the millions of Canadians filling up their gas tanks whether a 50-percent drop in oil prices is as terribly bad as Governor Poloz would suggest.

For that matter, ask oil-importing Ontario and Quebec, the country's two largest provinces, which account for more than 60 percent of Canada's Gross Domestic Product, how they feel about oil prices collapsing. If they liked it before, they're feeling even better now after the central bank came out of left field with its interest rate cut.

While cutting a quarter point from what are already trivial borrowing rates has all the economic leverage of pushing on a string, the real impact of the move is on the value of the Canadian dollar, which shed more than 3 cents last week.

If there were any lingering doubt about which way the loonie is heading, its custodian all but mapped out a one-way direction for its future. Unlike a tweak to already low interest rates, a move by the dollar into the 75-cent range can still pack a powerful punch. A lower loonie puts Canada on sale and can bring back economic activity in almost the same way as the oil-fuelled rise to U.S. dollar parity once sent it away.

Low oil prices have already been used to justify an interest rate cut, as well as a delayed and, presumably, reworked federal budget. With such a convenient scapegoat at hand, you can bet it won't be long before low oil prices will be made to shoulder even more blame.