The Agenda with Steve Paikin (Audio) - What Does a Global Oil Shock Mean for Canada?

Episode Date: March 20, 2026

The world has lived through oil shocks before - from the Suez Crisis of the 1950s to the Arab oil embargo of the 1970s - but today's turmoil raises new questions about how vulnerable global energy markets really are. What would it mean if Iran keeps the Strait of Hormuz closed, and how does this moment compare to past crises that reshaped the global economy? For Canada - the world's fourth-largest producer of crude oil and fifth-largest producer of natural gas - the stakes are especially high. When energy markets are shaken, Canada isn't just affected; it's implicated. So what political and economic choices should be on the table right now, and could the fallout push us toward a recession? To unpack the risks and the realities, we're joined by Bob Yawger, commodity specialist at Mizuho Americas, oil-market researcher Rory Johnston, founder of the Commodity Context newsletter, and Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute.See omnystudio.com/listener for privacy information.

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That's because it's the only maritime passage connecting the Persian Gulf and the Arabian Sea. And about one-fifth of the world's oil and natural gas passes through it. Or at least that's what happens in normal times. These, however, are not normal times. In response to the U.S.-Israel war against Iran, that country has effectively shut down all traffic through the strait and threatened to attack ships that defy them. The result? Global markets are rattled. Raising fears will get the kinds of widespread shortages, price spikes, and disruptions much of the world hasn't seen since the 1970s.

So how does this moment compare to previous crises and just how bad could it get? We break down the possible scenarios and risks and where this all leaves Canada. This is the rundown. We've seen oil crises before, the Suez Crisis of the mid-50s, the Arab oil embargo in the mid-70s. So how does this current crisis compare? And what happens if Iran keeps the Strait of Hormuz closed? Bob Yager is a commodity specialist with Missouho Americas. And he joins me now on the program.

to see you. How are you doing? Very good. Thank you for having me. I want to pull up some data that is probably no, you're no stranger to. You have seen this. This is a chart of the price history of West Texas intermediate oil since 1970. You can see when we start sort of in the 70, we're looking at $3 U.S. per barrel. When we look towards the 2020s, there have been some moments in history where we have hit about 100 and sometimes over $100 U.S. per barrel. The sharp increases that you'll indicate some kind of oil shock, and there have been many over the years. Bob, help us understand right now what's happening with the strait of Hormuz has never been closed to tankers like this before.

Some have gone on to say that this, what we're seeing is unprecedented. Why aren't we seeing oil prices higher than, say, in the early 2000s, mid-2000s? The big reason is because the United States and to a lesser degree Canada are not now oil producing superpowers. We, the United States, we produce 13.8 million barrels a day of crude oil. Back in those early 20s, we're going back to the first war in Iraq. I worked on the Florida, when we liberated Kuwait, we were probably producing six million barrels a day if we were lucky.

Now we're at 13.8 million barrels. We have energy security in North America, in the Americas in general. was not the case back in those days. It was not the case even through the first, through the second Iraq war with the second President Bush. That was still not the case. And the technology that we have at our hands now can bring a lot of crude oil out of a very tight space.

It can suck basically crude oil out of rock. And we've got, we are very good at that. In Canada, you're very good at. that also. And if you could build more pipeline in Canada, you would even be able to produce a lot more crude oil. So yeah, we have an abundance of crude oil. We're going to have an abundance of crude oil for a long time. And that kind of takes the shock effect out of the price, especially for North American WTI crude oil. You'll see today that one point, the international benchmark Brent contract was trading at basically a 20-year high, $20 premium to U.S. crude oil.

In other words, crude oil from the North Sea was $20 more expensive than the barrel from West Texas today. So what happens then is crude oil, there's no real reason for crude oil in the United States to go rally above and beyond. But with that $20 premium to the international benchmark, we're going to be like, we are going to be exporting barrels for size here in coming weeks. The crude oil is trapped in this, in the Persian Gulf, is going to divert their customers to the United States who are going to sell them a lot of WTI crude oil, which is a good crude oil, makes a lot of gasoline. The Canadian barrel, which generally comes down through the mid-continent of the United States,

is a thicker crude oil and makes a lot of diesel and heating oil. That has trouble making it to the sea, but if you sell us that oil, we can divert some of those our supplies to the Gulf Coast and sell them even more barrels. So look, the all-time record is about 5.6 million barrels a day of U.S. exports. We are at about 4.9 million barrels in yesterday's storage report. Look for that record the fall in coming weeks. I do have to ask, you know, prolonged high oil prices can test any nation. It doesn't matter if you are an export or an import.

I am curious, help us position what we are seeing right now, sort of in the history books here. What past oil shocks did not lead to a global recession? It's pretty much a layup to this large degree. Yeah, it certainly increases the odds. I mean, we traded $100 yesterday. We're in the range where inflationary pressures are going to be on the move and it's going to threaten a recession here. I just read before I left the desk that the traders are pricing in no rate cuts this year. They have to have that rate increase in their back pocket possibility to combat inflation moving ahead here.

So it's not looking – it's not a good situation. It looks – it's looking more and more like a low growth. growth, possibly low job environment moving forward from here. And that is not good. I will tell you the big problem here in the States. I mean, we're not immune to all this, despite the fact that we're pretty far away from the Persian Gulf or the Middle East and the fact that we don't import Barrelsonor anymore. However, the price of gasoline here in the United States is up over 30% in 18 days.

Since the beginning of the war, the price of gasoline at the point. pump has been higher for 18 days in a row. It's been higher for every day of the war so far. So that is going to put pressure on the consumer. That is the easiest way to get to inflation is high energy prices because it bleeds through so many different industries. So yes, it's a real problem here. It's not only an inflationary problem.

It's a political problem for the administration. We have the midterm elections coming up. in November. And if people are driving and they're paying $4, $5 for gasoline during summer driving season, they'll remember that when they go to the polls. Bob, how would you compare this oil shock to those of the past, say the 1973 oil embargo or when oil prices traded at $147 per barrel briefly in 2008? The 2008 scenario was kind of a drift higher. It wasn't necessarily. a one day 10% spike higher.

It wasn't just one factor. It was geopolitical mayhem, basically, in Iraq. It was the increasing demand by China to next level demand numbers. And it was also the dollar. Those three forces conspired to rally crude oil to the highest level of all time. But there was like, it was more of a gradual thing. It wasn't like a big one-day event. So I would say this time because of the quickness, it's, it's a big event. However, I would also say that the Russian war in Ukraine, that was a big one. That left a lot of European Union's

access to what they had bet would be their oil. gas supplies for millennium off the market. And they had to scramble really fast to secure new supplies. And those numbers went to the moon. And that was a big shock to the system. That was a big shock to one of the biggest economies, the European Union of all time to any economy. And so that was a big one.

There's a lot of, in some ways you could say that was worse. But it's, you know, it's apples and oranges at this point to a large degree. We still haven't traded to the levels that we were at in the Russian War in Ukraine. Brent traded to $119 in the beginning of the war, traded to $1119 today. But that's still a good $11, $12 away from where we were at during the Russian War of Ukraine. If hostilities were to cease tomorrow, how long would it take for global oil and gas to balance itself? maybe perhaps come back to where it was February 27th before the U.S. and Israel attacked Iran. Market would fall really fast in one day, for starters.

It would be a $10-15 move to the downside. It probably would be another one the day after that. This has happened before. This had happened in the first Gulf War. The market would trade limit down multiple times in one day. That would probably happen, again, to a certain degree, if they just wrapped it up today from out of nowhere, which I wouldn't say as likely, but I would say there's a one, two, three percent chance that it does happen.

If that were to happen, it would pull back fast. However, there is no doubt that there's significant infrastructure destruction in production space in the Middle East, in the Persian Gulf as of right now. Kuwait energy was putting out this morning that it would take as long as five months to them to fix the damage that has been done to their facility. which is the largest LNG facility on the planet that moves 20% of all LNG supplies on the planet has been damaged. And that's longer than I thought, but they're putting out five months to fix that today. Three refineries representing 1.2 million barrels of refining capacity were targeted by the Iranians today. in earlier part of the war, the fourth largest refinery in the world in the United Arab Emirates was targeted. That's 800,000 barrels a day.

And the largest refinery in Saudi Arabia for 550 million barrels a day was also targeted. That production is not going to come back from those refineries on day one. You'll get the big moving in crude oil. you would get the big crude oil, not moving crude oil, but oil infrastructure is going to take longer to come back. All right, Bob, we are going to have to leave it there. Really appreciate your insights on this, and thanks for the history lesson as well.

Did you know that Canada is the fourth largest global producer of crude oil and the fifth largest producer of natural gas? Meaning, when global energy markets are shaken, we are in a unique position. So what moves should we be making right now, politically and economically, and could we be headed toward a recession? Bob Yager is a commodity specialist with Missouho Americas. joins us again, and Rory Johnson is an oil market researcher and founder of the Commodity Context

newsletter, and Heather Exner Puto is the director of energy, natural resources, and environment at the McDonald-Loreau Institute. Great to have you all on the program. Rory, I'm going to start with you. The petro dollar system began in the 1970s. This is where, you know, Middle Eastern oil producers sell their products in U.S. dollars. They spend those earnings, of course, on U.S. assets like treasuries. It helps Americans fund, America fund its spending, also some exchange for security as well in the Middle East.

Help us understand what is the future now of the petro dollar system. Well, part of the challenge is that those golf producers aren't currently making any money. So there's not many petrodollars to recycle into that system. So that is obviously a massive drain of liquidity from the financial system globally and obviously transfers directly into the U.S. dollar. But again, I think this situation remains untenable to last. I think something's going to have to move because these are, we're currently at existential levels of kind of despair of the Gulf producers

between Iraq, Kuwait, Saudi Arabia, and the UAE to name but a few. we've already had, you know, we're 20 million barrels a day lost through the straight. And just to put that in perspective, I think it's important to kind of understand how big a number that is. That was roughly the peak of global demand loss during the peak of COVID in March and April of 2020. So when not a plane was in the sky, we were all locked in our homes, that's the current level, if the straight remains closed, that we are going to need to see some degree of demand destruction to kind of close that gap. So imagine trying to replicate the mobility issues of COVID,

but without a pandemic and without lockdowns. What price would you require to get there? So I think back to this question about the GCC producers, the Gulf producers, you've already seen more than 9 million barrels a day of production shut in. That's not just blocked. That's production, these wells aren't producing anymore.

This is going to take weeks, months to get back up and running. There's not a lot of money coming in. All right, Heather, Rory's painted a picture there. What is the future now for the petro dollar system, as you see it? Yeah, well, just to reiterate, you know, Rory's alarmism, and Rory is usually pretty balanced guy, but things are bad. I was just with some Australian miners yesterday. Some of the lithium mines, they're down to five days of storage. They're going to have to shut in their mine.

So the idea that, oh, just move to electricity, you know, just move to renewables, the availability of oil and all the things it produces, greases the wheel of every other facet of our economy. And so there's no doubt that we'll have a hangover, you know, however this ends and whenever it ends, and I agree with Rory politically, it's untenable. And so people are looking for exit ramps right now. Bob? I think I agree with them to a certain degree. Those dollars are locked in right now. And I would tend to think that it's going to be the case for a good two weeks, two months or up to Memorial Day weekend is where I'm looking for kind of to wrap this up at.

the Trump administration cannot afford to take this into summer driving season. So I'm looking forward to end about there. But there's a lot of oil out there. On the other hand, the global economy would be able to survive. Prior to this, the International Energy Agency was estimated. There was about 3.8 million barrels of surplus every single day. So there's a lot of oil out there. But it is definitely a problem.

All right. I want to pull in a chart. This looks at Canadian oil prices from 2014 to 2026, but I want to keep our focus onto the right-hand side of this chart here. Prices of Canadian oil rose around the same time that the war began in the Middle East, a huge kind of spike right there. But they are still well short of all-time highs, which was, of course, in 2022. Rory, is Canada in for an oil and natural gas windfall? because we, you know, we're a reliable, some would say secure, democratic supplier of those resources.

Is this an opportunity here? I think in the initial term, absolutely. I think what we're already seeing with Brent prices, you know, we're currently at about $110 a barrel, WCS differentials are the discount borne by Western Canadian select barrels, our main heavy sour export. They had actually been under pressure earlier this year following the kidnapping and kind of regime change in Venezuela,

following the kidnapping of Nicholas Maduro, the reentry of those Venezuelan heavy sour barrels, similar to our own, was weighing on Gulf Coast discounts. But basically what's happened through the Iran War already is in two weeks that discount has been entirely erased again. And the reason for this is that the majority of barrels coming out of the Middle East,

coming out of the Strait of Hormuz, are medium to heavy sour barrels. So we are benefiting as Canadian exporters both on the kind of overall price level, as well as a better differential or discount. The challenges is I think, the longer this goes on, I'm pretty alarmed, as Heather was saying, I'm very alarmed. And I don't think this is just recessionary. I think this is depressionary if this continues for as long as it could. And I think that's why I can't see this

lasting. But even in a scenario of higher oil prices, Canada will hurt from the economic pain globally if this does spread into a global economic catastrophe, which is where it's looking like this is going right now. Heather, when we talk about countries that are hurting right now because of this situation, we can look to countries in Asia, China, India, Sri Lanka, other nations, but I want to focus a little bit on Canada's sort of new forge relationships with China. For example, I am curious, what does this supply disruption in the Middle East mean for these relationships for Canada, say, amongst China and the other Asian countries? Yeah, so we're always right that this is hurting everyone. Canadian consumers will not benefit from this. But if any country is looking like it may be a winner,

you know, in the medium and long term out of this, I think it's Canada. Russia might have some claim to that as well. But the reason for that is that we are an enormous oil and gas exporter. We are able to export off the West Coast. Now, to some extent, we're looking to export more oil off the East Coast, and we ship through the Gulf of Mexico. So we have quite a lot of diversity of where we can ship things through. Obviously, Carney has been very focused on improving those Asian alliances. He's been to Japan. India and China, obviously energy led those discussions. Uranium was also on the agenda, but it's very much oil, natural gas, and LPGs.

And if you're one of those buyers and you're already thinking about Canada, well, we are just keep, our brand keeps getting better and better. The premium that you might assign to that reliability, to that Canadian optionality is probably getting better. And I would say that helps, for example, as we're expanding Trans Mountain to get buyers in Asia to take off excess production that we could send through there. I think it probably helps get the final investment decision on LNG Canada, too, and Solisim's LNG. And just overall, I think people will make, you know, if you can have optionality and Canada is an option now, I think that would be attracted to disbode everyone. Bob, Heather says, you know, Canada is a potential winner here, but I want to talk about infrastructure. Does Canada have the ability to ramp up oil and gas production quickly?

I know we talked about, you know, pipelines as well, whether we have enough of that or or not? Can we do this? No. No, the U.S. will be the best customer. And as we're almost all the barrels would go, that's where the pipelines go. At this point, they go into the mid-continent, and the refineries, US refiners in mid-continent soak up that crude oil. And it's reliable. It moves every day perfectly. What Canada needs is another larger pipeline to the West Coast, where they can export barrels to basically to China, but there will also be barrels that would go to Japan and South Korea also. Now barrels actually go to a large degree to California and the West Coast also.

But they need a bigger pipe, build a bigger pipe and the producer will add more barrels. They will increase production. It's as simple as that, but financing that pipe is no easy task. And building the pipe would be an architectural wonder of the world. It's not easy. It's pretty long ways, and you've got the Rocky Mountains in the way, too. It can be done, but it costs a lot of money, and you need that kind of commitment. Heather, I'll get you in on a response to Bob there. Well, I mean, Bob's absolutely right. So we have the expansion of Trans Mountain, the obvious customers for those are in Asia.

That's likely to happen. That would probably be about 360,000 barrels. So that's what we're focused on now. LNG is a bit of a different story than oil. We all want that Northwest Coast oil pipeline, but to Bob's point, it's easier to go to the United States. And also we've attached a $20 billion carbon capture project to a new Northwest Coast oil pipeline, which on top of the financing and then engineering difficulties makes that more of a long shot. And so you have seen that what is actually happening in real time as producers are looking to send more south.

Enbridge is expanding its main line, optimizing it. And now we're having the revival of Keystone Excel. And so the oil is going in the shortest route and the smoothest route it can find. And most of that happens to be the United States. Rory, Canada produces about 6 million barrels of oil a day and has dozens of refineries across the country. What is preventing this country from being self-sufficient when it comes to using our own oil and gas products like making gasoline or diesel? Yeah, so Canada, actually I wrote a report with Heather at the McDowell-Lory Institute, specifically on this question of Canadian refining sufficiency.

And as a country overall, we actually roughly refine as much fuels as we consume. The challenge is that, for instance, some of our refineries on the East Coast can't get access to the crude oil produced in Western Canada. This is where we initially had arguments for things like the Energy East Pipeline that would connect the two sides of the country. We saw this with the TC Energy Main Line connecting gas, you know, a very, very long time ago now. This is what you would need as well. The challenge is economics. It's always going to be cheaper, to Heather's point, to go south. It's always going to be cheaper.

And I think when people bemoan the over-dependence on the U.S. market, they kind of say it's a government failure. I would argue the opposite. I would say that this is what the private sector is going to do if left to its own devices. If we do want the optionality, if we want the energy security in eastern Canada, and we want the optionality of westward exports, you know, for instance, servicing the Indian market directly, which currently we can only service through re-exports of the U.S. Gulf Coast. That's going to require this much more expensive Northwest Coast oil pipeline that I fundamentally believe, will not be built if left only to the private sector. It will need government money. And that's a strategic element that only government can incorporate. The private sector can't value that.

Bob, I'm hoping you can pull the curtain a little bit. I'm curious. What do you think Canadian oil executives are talking about right now in boardrooms as they are watching sort of the chaos in the Middle East right now? They're most concerned about the differential between WCS and WTI. They want to see that spread narrow and the Canadian barrel become more attractive. That's how they will maximize their production going forward from here. So that did narrow after the Venezuelan situation.

The Venezuelan situation was very negative Canada. That was worst possible scenario. And then the president talked it up as if it was a solution to all these heavy barrels. And that actually drilled the market down to an artificially low, level. In other words, the Canadians were getting kind of ripped off a little bit. The price was too cheap. Nobody's going to take those Venezuelan barrels instead of Canadian barrels. The U.S. refiner wants Canadian barrels. It's politically stable. They're on time. There's no chance of force majeure. It's a dream market. But it's for the Canadians' defense, it's not a

minus $16 market. They deserve better than that. Somewhere around a minus 11 bit. minus 13. And that's what the producer right now is looking at. And he wants to see the market settle into that range. Rory, I am curious. I want to get back to the Middle East. Do you think we have enough information to gauge what is really happening with oil supply right now? Is there something that perhaps we are missing? I think part of the challenge, I think some of the disconnect, because I think the futures markets, as an example here, have been very, very volatile and arguably have lagged, where many analysts like myself think that the price of oil should be,

given the level of alarm that I think is justified. But what we've seen over the past couple weeks is that the jawboning or kind of talking down of the conditions in the oil market, by the White House, by Trump, by Bessent, the Treasury Secretary, Energy Secretary, Right. These have all kind of taken the wind out of these positions. We saw this in a remarkable fashion two Mondays ago when we saw $35 a barrel spread intraday for these prices.

many traders got blown out. And I think there's a wariness to get too long ahead of physical markets here. But I'm just looking at my screen right now. Cash crude right now off the coast of Dubai, basically on the Omani Gulf, is currently trading at $170 a barrel. That's the type of prices that we are going to see coming towards us. And it's like a shock wave rippling out. It's going to take time if we're seeing it hit Brent before we're seeing it hit WTI, all of these things. But eventually, these are fungible barrels to a degree. The market will become. more uniform. We're still in just the very, very early stages of the shock. Heather, you get the last word here. If Canada does become a more attractive source of oiling gas, does that mean we will see

more foreign or domestic investment to follow? Well, absolutely. And I'll say, you know, one thing, since the beginning of the year, oil sands producers, their stock prices have far exceeded, you know, the S&P 500, but even the average, the average of energy producers. And so oil sands, Canadian oil is very attractive. People are betting that it's going to have a good couple of years. And I think now is a time, you know, we're still negotiating at MOU. There's still some of our own house to get an order in Canada. What will be the industrial carbon price? A lot of uncertainty on our own side to, you know, to be topped off with what's happening in global markets. I hope we get our act together very quickly so that producers can start making those investment decisions. Pipeline

companies can make their investment decisions and we can plot out what is it that Canada can be doing in the short and medium and then hopefully long term as well. All right. We are going to have to leave it there. I'm probably not going to have all of that information on my computer like Rory does or Bob does all the time. But it's the story that we, of course, are going to continue to follow. Bob, Rory, Heather, really appreciate your insights.

Thank you. Thank you. I'm JAN. Thanks for watching The Rundown. We'd love to know what you think. So send us your suggestions and feedback at tvO.org slash rundown feedback or leave us a comment on YouTube. Until then, I'll see you next week.