Will oil's collapse kill the Keystone pipeline?

While some Wall Street analysts now think the probability of the U.S. economy going into recession are nearly 50 percent, Canada is already there. That bad news comes as Canada gears up for a general election in October and at a time when the slide in global oil prices could spell continuing trouble for Canada's energy-dependent economy. And that extends to the controversial Keystone pipeline to the U.S.

America's neighbor to the north is the planet's 11th-largest economy and the U.S.'s biggest trading partner. Last year the U.S. did $634 billion dollars in trade with Canada, booking a $31 billion dollar trade deficit in the process.

Canada is a natural resources and commodities exporter, which makes it particularly vulnerable to China's slowdown. Canada sells China nickel, copper, wood, paper and fish products while importing appliances and consumer goods. In 2014, Canada shipped out close to $20 billion in exports but took in close to $60 billion in Chinese goods.

Back in 2012 Prime Minister Stephen Harper worked hard to close a trade deal with China in hopes of narrowing that lopsided deficit. Key to Harper's strategy was getting China on board to buy Canadian oil, which had historically been shipped almost exclusively to the U.S.

Harper's play to the East was also meant to pressure President Obama into approving the 1,179-mile Keystone pipeline that would run from Alberta, Canada, down to Nebraska and would tie into existing pipelines to Illinois and the Gulf Coast. The Obama administration has been deliberating on the contentious $8 billion dollar project for several years.

Environmentalists, who have made rejecting the pipeline a top priority, say oil's drop from $100 a barrel in 2008 down to the mid-$40s this week undermines the economic viability of the Keystone project.

Anthony Swift with the Natural Resources Defense Council (NRDC) said the latest drop in oil prices is the result of permanent reductions in the entire world's oil consumption, aimed at shrinking the planet's carbon footprint in hopes of slowing climate change.

"Look at the U.S. when back in 2003 the Energy Information Agency predicted that in 2014 the U.S. would use 30 million barrels a day and we ended up only using 19 million," said Swift, who's director of the NRDC's Canada Project. "A climate-safe world is a world with low oil prices."

"Our producers look at the project in the long term, so fluctuations in oil are much less important," countered Mark Cooper, a spokesman for TransCanada (TRP), which wants to build the Keystone pipeline. "The reality remains shipping oil by pipeline saves producers $10 a barrel and generates less greenhouse gases than shipping by rail."

Despite the market upheaval caused by China's slowdown and the hit Canada is feeling from the collapse in oil prices, A. Michael Spence, a Nobel laureate and fellow with the Council on Foreign Relations, remains sanguine. "China and the markets really overestimated on the demand side, and what China was doing was just not sustainable economically or environmentally," Spence told CBS MoneyWatch. "The export markets (China was) selling into just were no longer growing at the rates they once were."

Spence said in his view China has been relatively "surefooted" in its pivot from an export economy to one led by domestic consumption. "There will be a difficult adjustment period," he acknowledged. Spence also suggested that the slide in oil prices isn't entirely due to a broader economic weakening. "We are going to a more energy-efficient global economy for lots of reasons," he said.