Hormuz Tensions Lift Oil Prices: Who Wins and Who Loses in Canada’s Economy?

Oil prices surged as renewed military exchanges between the United States and Iran intensified concerns over energy shipments through the Strait of Hormuz, delivering a boost to Canadian energy stocks while reviving inflation fears across the wider economy.

Brent crude climbed $7.29, or 9.59%, to settle at $83.30 a barrel on Monday, while U.S. West Texas Intermediate rose $6.73, or 9.42%, to $78.14. Both benchmarks reached their highest settlement levels in about a month after Washington announced that a naval blockade covering Iran’s coastline, ports and oil terminals would begin on Tuesday.

Despite the powerful rally in oil, Canada’s main stock index ended the session slightly lower. The S&P/TSX Composite Index fell 0.15% to close at 35,252.72 points, as declines in gold and materials stocks outweighed a 3.17% gain in the energy sector.

Markets remain highly sensitive to developments in the Strait of Hormuz because the waterway handled about one-fifth of the world’s daily oil and liquefied natural gas supplies before the conflict began in late February. Tanker traffic through the strait fell to its lowest level in two months on Monday, while some vessels reportedly switched off their public tracking systems because of mounting security concerns.

For Canada, higher oil prices can increase revenues and profits for producers, particularly in Alberta and Saskatchewan. They may also support investment, employment and government revenues in energy-producing regions, while improving Canada’s terms of trade as a net energy exporter.

Scotiabank Economics estimates that a sustained increase of $10 per barrel in West Texas Intermediate crude could raise Canada’s real GDP by about 0.5% in the second year of the shock. The estimate is a model-based scenario that assumes the price increase lasts for at least two years, rather than a direct forecast for the current crisis.

The benefits, however, would not be shared equally. Canadian households could face higher gasoline, heating, transportation and consumer-goods costs, reducing their available spending power. Airlines, trucking companies, manufacturers, agricultural businesses and other energy-intensive industries could also experience rising operating expenses and tighter profit margins.

Persistent fuel-price increases could also complicate the Bank of Canada’s inflation fight. Scotiabank’s model suggests that a sustained $10-per-barrel increase could add about 0.2 percentage points to Canadian inflation and lead to interest rates being approximately 30 basis points higher than they otherwise would have been.

The Canadian dollar often benefits from rising oil prices because stronger energy exports increase demand for the currency. However, that relationship can weaken during geopolitical crises when investors move toward the U.S. dollar as a safe haven, potentially limiting gains for the loonie and increasing the cost of imported goods.

Higher oil prices therefore represent neither a clear victory nor a complete loss for Canada. Energy producers and oil-exporting provinces may benefit, but families and businesses could pay more for fuel, transportation and everyday goods. The final economic impact will depend largely on how long the confrontation lasts and whether shipping and physical energy supplies through the Strait of Hormuz suffer sustained disruption.