Crude oil’s collapse has not only caused turmoil in Canada’s oil-and-gas sector—it’s also precipitated a major political shake-up in the energy-rich province of Alberta. And that, in turn, could cause further turmoil in the country’s energy sector.

In the election held for Alberta’s Legislative Assembly last Tuesday, the center-right Progressive Conservative Party, which held power for 44 years in what some have characterized as Canada’s most conservative province, was soundly thrashed at the polls by the left-leaning New Democratic Party.

Before the election, the Conservatives held a commanding 70 seats in the 87-seat chamber but lost all but 10 last week. The New Democrats, whose representation was a previously negligible four seats, saw their numbers jump to 53 seats.

At issue was a contentious budget being pushed by now former Conservative Premier Jim Prentice to address Alberta’s record deficit, which is forecast to balloon to CAD5 billion this year.

Prentice, who had only assumed the premiership last September, called for the snap election in early April in order to seek a mandate for his budget.

His plan proposed raising income taxes, as well as introducing a healthcare levy and other fees to offset lost revenue from the crash in the energy sector, while maintaining spending at current levels and borrowing heavily to finance much-needed improvements in infrastructure.

The province, whose fortunes are closely tied to the energy sector, is on the brink of recession. According to Bloomberg, royalties from the oil-and-gas sector accounted for about one-fifth of the province’s revenue in the current fiscal year but are projected to plunge to just 7% of revenue in the next fiscal year.

As the old saying goes, elections have consequences, and the New Democrats, led by presumptive Premier Rachel Notley, have vowed to raise corporate tax rates while possibly increasing the royalties levied on oil and gas companies.

For its part, the market has already offered its take on what the election portends: The S&P TSX Capped Energy Index was down as much as 5.1% from its close prior to the results, though it ended the week off by just 2.9%.

Prickly Pair

Nevertheless, the resulting shift in environmental policymaking means that, at least for now, Alberta will have a lot more in common with its prickly neighbor British Columbia, whose byzantine political and regulatory process has repeatedly stymied Canada’s efforts to diversify its energy export markets and lessen its near total dependence on the U.S.

For instance, Enbridge Inc.’s (TSX: ENB, NYSE: ENB) CAD7.9 billion Northern Gateway pipeline project has had more ups and downs than we could possibly recount, but after having already cleared numerous hurdles at both the provincial and federal level, the election result was likely an unexpected setback.

In an interview with the editorial board of the Calgary Herald prior to the election, Notley said that she would withdraw provincial support for the pipeline.

“Gateway is not the right decision. I think that there’s just too much environmental sensitivity there, and I think there’s a genuine concern by the indigenous communities. It’s not going to go ahead. I think most people know that.”

At the same time, Enbridge itself has been mostly quiet about the project, as the CBC observed, since winning federal approval for it last June. Perhaps that’s because the government’s decision came with 209 conditions attached, likely making the project even more expensive than the aforementioned price tag.

Given the rising costs along with the current state of the energy markets, some were starting to wonder whether Enbridge had simply decided to table the project. But in a conference call with investors last week, CEO Al Monaco reaffirmed his intent to proceed with building the pipeline.

“We think that the view is worth the climb here on this project, and hopefully with some further discussion the premier-elect would agree with that,” he said.

If it ever gets completed—the company’s most recent estimate is that it would be in operation by 2019, at the earliest—the 730-mile pipeline will have the capacity to move as much as 525,000 barrels of oil per day from Alberta to a deepwater port on Canada’s west coast.

Of course, as evidenced by British Columbia’s eventual imprimatur for Northern Gateway, supposedly principled opposition is sometimes just a negotiating position.

Notley did, however, seem to be in favor of Kinder Morgan’s proposed expansion of its Trans Mountain Pipeline, which would nearly triple its capacity to 890,000 barrels per day, as well as TransCanada Corp.’s (TSX: TRP, NYSE: TRP) Energy East Pipeline project, which would carry 1.1 million barrels of oil per day from Alberta to Saskatchewan.

Rip and Ship

Meanwhile, oil executives are apparently quavering at the prospect of a revised royalty regime. That bit of economic populism may have played a big role in helping the New Democrats win at the polls.

To that end, Notley has frequently accused her predecessors of being more interested in creating jobs at Texas refineries than in the province itself. She’s characterized Conservatives’ rip-and-ship policymaking as squandering the province’s wealth with a “fire sale” of its resources.

As such, she intends to set up a Resource Owners’ Rights Commission to tweak the royalty system so that it rewards upgrading and refining, and not just extraction. Her hope is not just to keep more of the revenue from the crude oil value chain in the province, but also to create thousands of new jobs.

Of course, the reality of governing can often undo promises made while electioneering. Prior to the election, Notley had said the commission would propose a new royalty structure within six months of forming a new government. But when pressed by reporters on Wednesday to confirm this timing, she demurred.

Additionally, there’s economic reality. As The Globe and Mail notes, North America already has a glut of refining capacity, and any new refineries would require subsidies to incentivize the high cost of constructing them.

Beyond that, while there’s never a good time to impose new costs on a highly productive industry, with oil prices still down nearly 45% from their trailing-year high, it certainly seems like the worst possible time to do so now—especially if job creation is a concern.

And the lingering uncertainty is equally bad for investors. Indeed, as Canoe Financial portfolio manager Rafi Tahmazian told the Financial Post, “As an investor in the oil patch, you’re going to get your teeth kicked in, probably. At the very least, negligible returns.”

But the flow of capital or lack thereof could force the new premier to clear the air sooner rather than later. For now, analysts and professional money managers recommend that investors shift their energy sector exposure away from producers and oilfield services companies with significant operations in Alberta.