{"id":537092,"date":"2026-03-21T17:19:15","date_gmt":"2026-03-21T17:19:15","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/537092\/"},"modified":"2026-03-21T17:19:15","modified_gmt":"2026-03-21T17:19:15","slug":"how-the-oil-shock-could-lead-to-wider-economic-pain-for-canada","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/537092\/","title":{"rendered":"How the oil shock could lead to wider economic pain for Canada"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Global oil prices jumped almost 3 per cent on Friday to US$112.Christopher Katsarov\/The Canadian Press<\/p>\n

One of U.S. President Donald Trump\u2019s<\/a> stated goals in attacking Iran<\/a> was to contain the nuclear threat posed by that country. <\/p>\n

Three weeks later, with energy markets in turmoil, stocks erasing months of gains and higher prices walloping consumers, economists are now assessing a different kind of threat: economic contagion posed by the conflict itself.<\/p>\n

Global oil prices<\/a> jumped nearly 3 per cent Friday to US$112 as the International Energy Agency warned in a report that the disruption to shipping through the Strait of Hormuz, which carries about 20 per cent of the world\u2019s oil supply, has triggered \u201cthe largest supply disruption in the history of the global oil market.\u201d <\/p>\n

After the war began on Feb. 28, oil prices soared roughly 50 per cent and have gyrated wildly as traders digest often-conflicting statements from the White House and Pentagon about plans to protect shipping lanes through the strait, U.S. troop deployments in the region and measures aimed at boosting fuel supplies. <\/p>\n

Opinion: In Iran war, a shadow looms of $200 oil and a global recession<\/a><\/p>\n

The confusion is on full display in bond markets. The oil price shock has led to a huge repricing of market expectations for monetary policy. As of Friday, financial markets are betting that the Bank of Canada will hike interest rates three times this year, starting in July, in response to higher inflation.<\/p>\n

Just two days earlier, markets expected only one rate increase, while prior to the war, the central bank was seen holding steady through 2026 or possibly even cutting rates. <\/p>\n

The shift in market expectations has a real impact on Canadians. Bond yields, which underpin interest rates on fixed-rate mortgages and other credit products, jumped this week even as central bankers around the world stood pat. The yield on a five-year Government of Canada bond hit 3.2 per cent on Friday, up from 2.7 per cent at the start of the month. <\/p>\n

That\u2019s despite the fact that many strategists see a weak economic backdrop in Canada, stemming from the trade war, slowing population growth and slumping job markets.<\/p>\n

Eric Reguly: The Hormuz crisis instantly exposed the risks of rolling back green and cleantech agendas<\/a><\/p>\n

\u201cOverreacting to a likely temporary inflation spike with more restrictive monetary policy could needlessly deepen the economic pain,\u201d Royce Mendes, head of macro strategy at Desjardins, wrote in a note to clients. <\/p>\n

\u201cIn the short term, higher energy costs will work like a tax on many households and businesses. Financial conditions have also meaningfully tightened. As a result, the wave of homeowners renewing their mortgages \u2013 and those looking to buy a new home \u2013 will face fixed rates materially higher than just a few months ago, potentially pushing the hard-hit markets in Toronto and Vancouver further into recession.\u201d<\/p>\n

In everything related to this oil shock, the extent of the damage depends entirely on how long the conflict ensues. <\/p>\n

If oil prices remain at current levels for an extended period of time, it could push overall inflation in Canada up by one percentage point, according to an analysis by Trevor Tombe<\/a>, a professor of economics at the University of Calgary. <\/p>\n

The average national price at the pump for regular gasoline climbed 27 per cent to $1.78 a litre since late February, according to a federal government fuel-price tracker, while diesel prices jumped 35 per cent, feeding into higher transportation costs for goods. Likewise, airlines facing higher jet-fuel costs are already hiking ticket prices.<\/p>\n

Add to that the higher cost pressures from a surge in prices for fertilizer \u2013 another product snarled by the conflict \u2013 and the typical household could take a $1,000 hit. <\/p>\n<\/p>\n

The pain will fall more heavily on lower-income households, as well as families with children, said Mr. Tombe in an interview. \u201cFor those who spend more on fuel and food as a share of total spending, the consumer price hit will mean a much bigger drop in their disposable income,\u201d he said. <\/p>\n

And while it\u2019s already pricier to fill up at the pumps, the full impact has yet to hit, said Mr. Tombe, since changes in production costs for farmers, like higher fuel and fertilizer prices, tend to show up in grocery stores six to nine months later.<\/p>\n

For its part, the Bank of Canada<\/a> isn\u2019t sounding the alarm about inflation \u2013 yet.<\/p>\n

The Iran war has raised food inflation fears. Here are the most affected groceries<\/a><\/p>\n

On Wednesday, after holding the central bank\u2019s benchmark rate steady<\/a> at 2.25 per cent, Governor Tiff Macklem said the bank is prepared to increase interest rates if the oil shock pushes up a broader set of goods and services prices and lifts inflation expectations. <\/p>\n

But he said that mild inflation heading into the conflict \u2013 headline inflation was 1.8 per cent in February \u2013 and a weak economic backdrop means the risk of price pressures broadening out \u201clooks contained\u201d in the near term. <\/p>\n

\u201cWe don\u2019t think this is going to spread quickly, so we\u2019ve got some time,\u201d he said after the rate announcement.<\/p>\n<\/p>\n

For all the upheaval in energy markets, some forecasters have been surprised by the extended sideways move in oil prices for much of the conflict, even as missiles from both sides struck oil infrastructure in the Gulf region.<\/p>\n

That said, stock markets have taken a big hit, and that has experts concerned.<\/p>\n

\u201cOil spikes could transmit faster via equities than the pump, pressuring spending through the wealth effect,\u201d wrote Kriti Gupta, a global investment strategist with JPMorgan Private Bank, in a note. Stock markets are \u201cthe transmission mechanism that makes this not just a supply-side issue, but a demand-destructive one.\u201d<\/p>\n

Friday marked the fourth-straight weekly decline for the S&P 500, bringing it to a level it was at last September. Meanwhile, Canada\u2019s energy-heavy S&P\/TSX Composite Index fell 2 per cent Friday and has erased its gains since the start of the year. <\/p>\n

Numbers released by Statistics Canada earlier this week showed that equities and investment funds accounted for roughly one-third of household net worth at the end of 2025. That compares with 37 per cent for U.S. households. <\/p>\n<\/p>\n

The worry is that with households so exposed to equities, shrinking portfolios could lead them to cut back on spending.<\/p>\n

The threat of rising inflation and the prospect of slowing growth has reignited talk of stagflation, the troubling economic quagmire that characterized the economy of the 1970s. <\/p>\n

On Wednesday, U.S. Federal Reserve chair Jerome Powell was pressed on whether stagflation is a risk again. <\/p>\n

\u201cI always have to point out that that was a 1970s term at a time when unemployment was in double figures and inflation was really high,\u201d he said. \u201cThat\u2019s not the case right now. I would reserve the term stagflation for a much more serious set of circumstances.\u201d<\/p>\n<\/p>\n

What would it take for stagflation to return? Mr. Tombe said oil would need to rise on par with the 1970s spike. \u201cWe\u2019d be talking US$250 oil.\u201d<\/p>\n

But even then, Canada is better positioned now. This country is one of the world\u2019s largest oil producers, which means a sustained period of higher prices could boost federal coffers by as much as $10-billion, said Mr. Tombe, and eventually lead to investment in the oil and gas sector.<\/p>\n

Canada\u2019s economy is also much less dependent on oil. Fifty years ago, it took nearly twice as much energy to produce each dollar of GDP than it does now, he said. <\/p>\n

In other words, for now, it\u2019s a mixed picture. Or as Mr. Macklem put it this week: \u201cIf it lasts, whether it\u2019s net positive or net negative, I think you will see some shifts in the composition of growth. Obviously, the energy sector will do better, consumers will be more squeezed.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Global oil prices jumped almost 3 per cent on Friday to US$112.Christopher Katsarov\/The…\n","protected":false},"author":2,"featured_media":537093,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[28,101,13849],"class_list":["post-537092","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-pleasemod"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/537092","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=537092"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/537092\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/537093"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=537092"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=537092"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=537092"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}