Bank of Canada: Middle East war has heightened the risks to the global economy
Canada’s central bank has warned that domestic near-term economic growth will be weaker than anticipated in January, following the war in the Middle East.
The Bank of Canada has left interest rates on hold today, and warned that the conflict has increased volatility in global energy prices and financial markets, and “heightened the risks to the global economy”.
The BoC’s monetary policy committee says:
double quotation markSince the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer.
Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened. The Canada-US dollar exchange rate has remained relatively stable.
The BoC also warns that the recent sharp increase in global energy prices has led to increases in gasoline prices, and this will push up total inflation in the coming months.
It concludes:
double quotation markAgainst this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices.
Updated at 09.59 EDT
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Canada’s central bank has warned that the conflict in the Middle East has increased volatility in global energy prices and financial markets, and “heightened the risks to the global economy”.
The warning came as Iran threatened to attack energy infrastructure across the Gulf region in retaliation for Israeli strikes on its largest gasfield, marking the first targeted attacks on its fossil fuel production since the war began.
Iran’s Revolutionary Guards have threatened counterstrikes on several energy facilities across Saudi Arabia, the UAE and Qatar “in the coming hours” after state media reports that missiles had targeted its gas facilities at the giant South Pars field, the largest gas reserves in the world.
The strikes on Iran’s South Pars gasfield, which it shares with Qatar, were widely reported in Israeli media to have been carried out by Israel with the consent of the US.
The attack against the heart of Iran’s gas infrastructure marks a key escalation in US and Israeli military operations. The two countries have until now largely spared Iran’s oil and gas sector and helped to keep a lid on the global oil price surge.
The oil price climbed towards $110 a barrel on Wednesday afternoon as the mounting threat to the Gulf’s oil and gas infrastructure fuelled concerns over more disruption to global supplies, amid the continuing blockade of the strait of Hormuz.
This latest escalation of tensions hit stocks in Europe, where London’s main share index fell almost 1%, and on Wall Street where the DJIA is down 0.9% now.
Investors were also rattled by data showing that US goods and services producers hiked their prices faster than expected in February. That could show inflationary pressures were bubbling up even before this month’s spike in fuel prices.
A government led by the Green party would not set targets for GDP growth but would instead focus on people’s mental health, social cohesion and community welfare, Zack Polanski has said in a major speech to set out his plans for the economy.
In other news:
ShareFTSE 100 closes down almost 1%
After a choppy day’s trading, London’s stock market has just closed in the red.
The FTSE 100 share index lost 98 points, or 0.94%, to close at 10,305 points, as anxiety over events in the Middle East hit stocks. Precious metals producers were among the fallers, reflecting the drop in the gold price today.
The FTSE 250 index of medium-sized firms has lost 0.44%.
UK petrol and diesel prices have continued to climb today.
The average price of a litre of unleaded is up 33p to 142.62p. That’s a gain of almost 10p since the crisis began, RAC data shows.
Diesel has jumped by over 20p a litre since the 28 February. It’s up 60p at 162.66p.
Average petrol and diesel prices, to 18 March 2026 Photograph: RACShare
The ‘panic’ in markets has reached Wall Street, where stocks are dropping (but not plunging).
The Dow Jones industrial average is down 458 points, or 1%. at 46,534 points in morning trading. Most of the 30 stocks on the index are down, led by paint company Sherwin-Williams (-2.6%) and manufacturing group 3M (-2.5%).
Oil company Chevron is bucking the trend, up 1%.
Updated at 12.06 EDT
Markets ‘back in panic mode’
Kathleen Brooks, research director at XTB, reports that “markets are back in panic mode” today.
double quotation markThe Brent crude oil price is surging and is higher by another 5% today, the gold price is down 2.8% and is below $5,000 per ounce, bonds are getting sold off and yields are surging and the dollar is rallying. This is a volatile backdrop to the Fed meeting [today], who also must factor in a strong reading for last month’s PPI report.
The surprisingly large jump in US producer prices earlier today is one factor – casting doubt on whether America’s central bankers can cut interest rates this year.
The second factor is the Middle East crisis, she writes:
double quotation markOn the oil front, the oil price is surging and is back above $108 a barrel, as the conflict escalates further. Iran has warned Gulf nations that their energy assets and infrastructure are now legitimate targets after attacks on its giant South Pars gas field by Israeli forces.
The risk is that an oil shipping crisis is morphing into an oil supply crisis. Unsurprisingly, this has spooked a market that was wiling to grasp hopeful signs that tankers were slowly getting through the Strait of Hormuz, and that countries like Saudi Arabia and Iraq could get oil into the market through alternative routes.
Gold isn’t living up to its reputation as a safe haven asset against geopolitical tensions and inflation fears.
It’s dropped to a one-month low today, down 2.6% at $4,872 an ounce.
Iran published a list of Gulf energy sites it says may be targeted after its South Pars gas field was attacked today:
Iran’s semi-official media has published a list of retaliatory energy targets:
Ras Laffan refinery – Qatar
Samref oil refinery – Saudi Arabia
Al Hosn gasfield – UAE
Jubail petchem plant – Saudi Arabia
Mesaieed petchem plant – Qatar
— Javier Blas (@JavierBlas) March 18, 2026
ShareUS waives Jones Act for 60 days to push down shipping costs
The US government is suspending a protectionist ban on foreign-flagged vessels transporting cargo between US ports, in an attempt to cool energy prices.
The White House has issued a 60-day waiver on the Jones Act, which requires goods sent between US ports to be carried on ships built, owned and operated by the US.
The move “will allow vital resources like oil, natural gas, fertilizer, and coal to flow freely to U.S. ports for sixty days,” White House press secretary Karoline Leavitt said in a statement reported by CNBC.
ShareIn detail: Energy prices rise after attack on Iranian gas infrastructure
Jillian Ambrose
Oil climbed towards $110 a barrel today, and gas prices have also risen, after Iran claimed that a US-Israeli air strike had targeted its gas infrastructure, marking the first strike on Iran’s fossil fuel production since the war began, my colleague Jillian Ambrose reports.
Iran state media reported that gas facilities at the giant South Pars fields, which it operates alongside Qatar, were attacked on Wednesday, leading to the shut down of several petrochemical assets “in order to control and prevent the speed of fire”.
In response Iran’s Revolutionary Guards threatened several energy facilities across Saudi Arabia, the UAE, and Qatar in retaliation for the attack on its energy sites, fuelling market concerns over oil and gas supplies from the region.
The international oil benchmark climbed by as much as 5% to a high of $108.60 a barrel, while Europe’s gas benchmark jumped by over 7.5% to over €55.50 per megawatt hour.
Qatar condemned the attack on the field. Qatari government spokesman Majid al-Ansra said:
double quotation mark“Targeting energy infrastructure constitutes a threat to global energy security, as well as to the peoples of the region and its environment.”
The Israeli targeting of facilities linked to Iran’s South Pars field, an extension of Qatar’s North Field, is a dangerous & irresponsible step amid the current military escalation in the region.
Targeting energy infrastructure constitutes a threat to global energy security, as…
— د. ماجد محمد الأنصاري Dr. Majed Al Ansari (@majedalansari) March 18, 2026
The global oil price pushed past $116 a barrel early last week, for the first time since May 2022, as traders began to count the cost of the war on global supplies of oil and gas.
Fossil fuel tankers have struggled to leave the Gulf since the start of the month when the IRGC wrested control of the strait of Hormuz, through which a fifth of the world’s seaborne oil trade flowed before the war began.
In addition to the chokehold on deliveries, Gulf producers have been forced to shut their own oil and gas fields after rerouting as much oil as possible via pipelines to bypass the strait and filling storage facilities.
Updated at 11.36 EDT
Markets are being shaken out of the complacent mode we have seen the last three sessions, reports Neil Wilson, Saxo UK Investor Strategist.
The hotter-than-expected US producer price inflation report (see earlier) is one factor. Wilson says the jump in the PPI is “very much a tariff story and worry is that this signals further structural inflation risks alongside the current bout of energy-based pressures.”
The attack on Iran’s South Pars gas field is also a sign of “potential escalation in the Middle East as Iran and Israel are definitely seen targeting upstream production facilities for oil and nat gas” he adds.
ShareBank of Canada: Middle East war has heightened the risks to the global economy
Canada’s central bank has warned that domestic near-term economic growth will be weaker than anticipated in January, following the war in the Middle East.
The Bank of Canada has left interest rates on hold today, and warned that the conflict has increased volatility in global energy prices and financial markets, and “heightened the risks to the global economy”.
The BoC’s monetary policy committee says:
double quotation markSince the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer.
Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened. The Canada-US dollar exchange rate has remained relatively stable.
The BoC also warns that the recent sharp increase in global energy prices has led to increases in gasoline prices, and this will push up total inflation in the coming months.
It concludes:
double quotation markAgainst this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices.
Updated at 09.59 EDT
European stock markets are now mostly in the red after Iranian state media reported that US and Israeli strikes have hit Iran’s offshore South Pars natural gas field in the southern Bushehr province (see earlier post).
With Brent crude now up 4.8% at $108.42, equities are moving in the other direction.
Britain’s FTSE 100 index is now down 70 points, or 0.67%, at 10,333 points.
Germany’s DAX index is down 0.4%, as is the pan-European Stoxx 600 index.