The recent military action against the Iranian regime by the United States and Israel has pushed international energy markets back into a state of anxiety, reminding politicians and policymakers that war remains a costly variable for global economies. The Strait of Hormuz sits at the centre of that anxiety: a narrow corridor whose disruption is already being felt through global oil and LNG flows. Markets respond not only to physical interruptions such as naval blockades and mines, but also to the expectation of that disruption. Even temporary spikes can have lasting economic effects, as was evident in late 2021 with the accidental blocking of the Suez Canal by an Evergreen container ship, which ran aground. For Canada, the implications are also significant. As a major producer of oil and natural gas, Canada can benefit from higher commodity prices in the short term; however, it does not set global prices, meaning it cannot prevent sudden energy price shocks from affecting households and industries. It goes without saying that the ongoing conflict in the Gulf exposes clear vulnerabilities within Canada’s energy sector. The aim of this article is to examine how this situation will play out across our economy, infrastructure, and policy, and to offer an optimistic and practical future for Canadian energy.
Global energy markets are tightly linked, and the recent tensions in the Middle East make that connection ever more obvious. When a major shipping lane such as the Strait of Hormuz is shut down, or a large producer of oil like Iran is threatened, global energy prices adjust quickly and often before any physical shortages appear, because traders calculate for that risk. For Canada, this unfortunately means a familiar but uncomfortable pattern: producers see higher export receipts almost immediately, while households and businesses face increasing fuel and transportation bills within days and even weeks. Whether Canadians capture the upside depends on logistics. Pipeline limits, terminal throughput, and port access play key determining factors into which barrels reach the most lucrative markets. When capacity is tight, Canadian crude can sell at a discount compared to global benchmarks, so some regions and firms see most of the gains, while others see little. Factor in higher insurance rates and longer shipping routes during crises, and the result is a web of winners and losers across provinces and sectors.
However, these uneven effects have the potential to put into action real policy changes that will significantly improve the livelihood of Canadians. We already possess the necessary resources and partial infrastructure needed to take advantage of rising global oil and gas prices, driven by the war in Iran. Ottawa can supply buyers in Europe and Asia who are seeking alternatives to Gulf providers, but the real policy task is to convert that capability into timely, responsible economic relief for us. The challenge is logistical and political, not geological. This means first and foremost, focusing on completing and optimizing projects that are already under construction, such as Phase 2 of the Coastal Gas Link (CGL) project between TC Energy and LNG Canada. At the same time, it must also relieve bottlenecks at ports and terminals and ensure that the export and transportation of our energy, reach international markets. Nevertheless, even with Canada’s tremendous ability to compete in the energy sector, it must do so in such a way that our environmental credibility is not lost. Enforceable climate measures such as accelerated methane detection, strict limits on venting and flaring, and mandatory product‑level emissions reporting, are crucial for Canadian barrels and LNG to be sold as lower intensity supplies.
The war in Iran is not just a localized geopolitical failure; it is a live economic shock with several plausible paths, each of which has different implications for Canada. If the conflict remains locked in the Gulf and transportation disruptions are brief, price increases will likely be transitory, and the main challenge will be short-term pressures on households and businesses. However, even if these shipping lanes reopen quickly, returning to the full peacetime energy supply architecture could take much longer because neighbouring Gulf states, such as Qatar, will need years to repair damaged infrastructure. On the other hand, if the Strait of Hormuz remains threatened or the conflict broadens, sustained supply constraints will inevitably keep global oil prices elevated for years. If the war against terror in Iraq taught policymakers anything, it is that conflicts in the Middle East often last far longer than initial expectations, so preparing for a long-term confrontation in Iran may be advisable.
