The Decibel - What war in Iran means for Canadian oil

Episode Date: March 19, 2026

Since the U.S. and Israel started a war with Iran, the price of oil has spiked. That’s largely because oil tankers are no longer travelling through the Strait of Hormuz, meaning roughly one fifth of the world’s oil and gas supply remains stranded in the Gulf region. This is having an effect in Canada, even though Canada is the world’s fourth-largest oil producer and exporter. Jeffrey Jones is a journalist in The Globe’s Report on Business, who has been covering the global oil market for decades. He joins the show today to explain why Canada is seeing domestic energy prices rise as a result of the war. Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

On Wednesday, a huge gas facility in Iran was struck reportedly by Israel. It marked the latest escalation in the war between Iran and the U.S. and Israel, and sent the price of oil up. During the past 20 days of fighting, at least 16 tankers have been attacked in the Strait of Hormuz, according to Britain's maritime trade operations. That waterway is the narrow passage that is crucial to moving roughly a fifth of the world's oil and liquefied natural gas. And after the latest attack on Iran's gas field, the Islamic Republic vowed it would respond with new strikes of its own, targeting Gulf oil and gas production. Many of these sites had already been shuttered because of the war. Later on Wednesday, Qatar's state oil giant Qatar Energy reported, quote, extensive damage after an energy industry hub was hit by Iranian missiles. Saudi Arabia also reported an attempted attack.

on a gas facility in the east of the country. Both sides of this war see this energy infrastructure as vulnerabilities to be exploited in order to pressure each other. And it seems to be working. Earlier this week, U.S. President Donald Trump called on American allies to help secure the Strait of Hormuz to try to get oil shipments going again.

My country's committed to protect your own territory because it is near territory. It's a place which they get their energy. And they should come and they should help us protect it. European leaders have so far refused to protect it. But British Prime Minister Kier Starmor said that he is working with some leaders to try to come up with a plan. We have to reopen the straight-off home moves to ensure stability in the market.

That is not a simple task. So we're working with all of our allies, including our European partners, to bring together a viable collective plan that can restore freedom of navigation in the region as quickly as possible. And until that freedom of navigation is restored, many expect the price of oil to go up and up and up. We're seeing the effects of spiking oil prices in Canada too. But why is that? Especially given that Canada is the fourth largest oil producer and exporter in the world. Jeffrey Jones is a journalist with the Globe's report on business. He's been reporting on Canada's energy sector and the global oil market for many years. And he's on the show to explain how Canada can be oil rich and yet vulnerable to higher oil prices at the same time.

I'm Cheryl Sutherland, and this is the destination. from the Globe and Mail. Hi, Jeff. Nice to see you again. Happy to be here. So, Jeff, we're talking on Wednesday around 11.30 Eastern. And for the last week, we've really seen oil prices surge reaching past 100 U.S. dollars a barrel. And for context here, before the war, it was about $60 per barrel.

So that's quite a jump. How would you describe the severity of the moment that we're in? Well, I would say severity is growing with each passing day. Don't forget, we've got about a fifth of the world's crude oil that remains blocked behind the Strait of Hormuz. And with each passing day, shortages start appearing in various parts of the world. I think the crisis is most acute right now in Asia, which is the big importer of oil from that region. But the rest of the world, including Canada, is affected as well. Because remember, as you said, we were kind of getting used to an economy.

that was going to run on $60 a barrel oil. And with 40% higher costs that ripple throughout the economy, the fears of recession grow with each day that this crisis lasts. Something you mentioned there was one-fifth of the world's oil goes through the street of Hermuz, right? So 20% of the oil is kind of not getting to the markets, right? And I've been trying to wrap my head around, like, why that's such a big deal? Because, in fact, 80% of the oil is still there.

But the reason why it's such a big deal is because we would have to reduce our consumption of oil by 20%, right? And that's why we're seeing the price of oil rise because that's basically impossible to do, right, for the world to reduce their consumption by 20% overnight. Well, I mean, think about the last time the world was able to slash consumption to that degree was during the darkest days of the pandemic when everybody was at home, not driving, where, you know, shipments of freight, air travel, all of that. was shut right down. So obviously that's not going to happen. So when you have a shortage of supply and only a limited ability to refill it with emergency oil, the price is going to rise. And that's what's happening. And so this $100 a barrel that we're seeing right now or just above that right now, this is likely going to go higher. The problem is one of timing, right? So it was explained to me this week that it takes two, three, four weeks for a shipment of oil on a tanker to get from the Persian

Gulf to its main market in Asia. So, you know, when we think about the timing of when this war started, the last ones to have left that region are going to start arriving at their main ports to unload their cargoes. Then the question becomes, okay, so where does the next shipment come from. So how bad could the prices get? Well, pick your number. I mean, so if we go to, let's say, four weeks of conflict, two months of conflict, there's little reason to think that oil prices are going to settle out at a lower level. I mean, the number of $200 a barrel has been floated already without people saying, you know what, that's insane. That's never going to happen. As a matter of fact, more and more analysts are beginning to throw that number out as a possibility.

I mean, $200 a barrel sounds like a huge number. Have we ever seen the price of oil get that high? No, we haven't. I mean, the highest we saw was around $150, nearly $150 a barrel, and that was in 2008 just before the financial crisis hit. Okay. So we're going to spend this episode talking about the impact of this price hike on Canada. But before we do, let's talk about how. other countries have been dealing with the lessening of supply. What are we seeing there?

So far, the impacts have been felt most acutely in Southeast Asia, which is the main market for Middle East crude. The number that I saw is like much more than 80% of the crude and LNG that go through the street of Hormuz are bound for Asia. Major economies in that region, including Japan, South Korea, China have stockpiles that they can draw on, but already they're seeing the impact on things like surging prices for products like jet fuel and diesel. Think about countries like Indonesia, Vietnam, Philippines, Thailand. They've already started to do things like shorten their work week, for instance, reduce travel. So that ripples through their economy for sure.

Yeah. And I was also reading that this really affects, impacts people's day-to-day life, right? So in Nepal, for example, they're rationing cooking gas. people aren't able to, I guess, cook the way they used to. That's right. And I mean, so obviously this is something that is going to increase all of these measures for rationing and changing the way that everyday life goes in those countries is going to be more and more of a reality.

So here in Canada, we're an energy superpower, right? So we're the fourth largest producer of oil in the world. So on paper, it seems like we should be protected by this spike in oil prices. Is that the case? Well, you have to think about it in this way. Yeah, we've got lots of oil. And as a matter of fact, we export way more than we consume in this country, but we don't set the price. I mean, the price of oil is set on international markets.

It rises and falls with all kinds of different factors. And in this case, it is riding a high on the conflict in the Middle East and the shortages that are appearing there, even though we don't have the. shortages in Canada. And I think we have to stress that point is that we're not in a position where we're having to ration supplies in this country. And it's the same thing in the United States. As a matter of fact, since the oil crises that affected the world in the 1970s, North America has become much more of an integrated oil market. So there is not the same reliance on supplies of imported oil that there was at that time. But we do feel.

it in terms of the price? People have been comparing this to the 1970s where we saw two big events spike the price of oil. So first in 1973, oil producers in the Middle East stopped supplying oil to the U.S. And then at the end of the 1970s, when another oil crisis was triggered by the Iranian Revolution, there were shortages and stories of people lining up for gas. I'm wondering whether these comparisons are fair or useful in understanding what's happening right now. I think history is always a good guide to the way things either were handled or could have been handled. And some of those lessons we've managed to learn since the 1970s, some of the things that affected us at the time we have yet to solve.

And one of those things is the ability of Western Canada to ship oil supplies to refineries in the east. There have been attempts to make that easier, cheaper through proposed pipelines, but they've never happened. So that's one vulnerability that Canada still faces. Can you explain that a little bit more? Because we have all this oil like we talked about, right, in Alberta, but it has to be refined and it's mostly not being refined in Canada, right? Can you explain that? The vast majority of oil that Canada produces goes to the United States and is refined there.

And that is through decades of building up a market that relies on Canadian oil. So it's much easier then for Canada to export oil to the U.S. than it is to send its crude to refineries in places like Quebec and New Brunswick. And those refineries and those areas still rely largely on imported oil. Some of it from the United States, some of it from other places. But, you know, there's no fortress Canada when it comes to oil supply, unfortunately. To bring it back to the 1970s, I'm curious about how Canada handled the crisis back then. What did Canada do? Well, at the time, Canada wasn't as affected as the U.S.

Canada didn't have that kind of panic buying when it came to gasoline. So we were a bit insulated because of the fact that Canada was able to produce much of what it consumed. But as I learned from Peter Tertzaki and an analyst and the economist, who is quite an expert on the history of energy around the world and in Canada. I mean, he came across some basically coupons that Ottawa had printed up in the event that Canada would have to ration gasoline that were never actually put into circulation. So there were plans in place to deal with potential shortages,

even though they never happened in 1979. Okay, so Ottawa was preparing for the distribution of these coupons. Is Canada in a better position today? Are we on the precipice of stamps again? No, we should be pretty clear about that, that Canada is not close to rationing gasoline and fuel supplies. But the problem now is less of actual supply and more of the price impact at the pumps

and for things like jet fuel and diesel. Right. So some of the challenges that were in place in the 1970s do remain in place today in Canada. specifically around getting Alberta oil to the rest of the country. So currently, what exactly are the options available to get oil from Alberta to a refinery in New Brunswick? They're expensive and complicated. So if you want to move Alberta oil to New Brunswick, it can be done.

But it has to go, first of all, on pipeline, through the United States, up back into Ontario, probably loaded onto trains, and then moved to St. John, where the, Irving Oil Refinery is. That's the largest in the country. So that's one way to do it. Another way, and this has been done a few times over the decades, is to actually ship Alberta crude to Burnaby, B.C. through the Trans Mountain Pipeline, load it onto a tanker, ship it all the way south through the Panama Canal, then back up on the East Coast where it could berth at that refinery. And I'll tell you, you know, that's not a cheap proposition. And it takes a long time. Yeah, I was going to say that it sounds complicated and it sounds like it'd take a long time and would be very expensive just to get the tanker, to fuel the tanker to get all the way around.

And that's why those refineries in that area are so reliant on imported crudes and in some cases still Canadian oil. I don't forget that offshore Newfoundland still produces crude, but certainly imported supplies are sort of the largest feedstock for those plants. What about by rail? Well, rail is a possibility as well, but versus a pipeline, it's a lot more expensive, and there's a lot more logistics involved. From the oil experts that you've spoken to, Jeff, why hasn't Canada solved these logistical barriers that we've known for, I mean, a long time, about 50 years now? There's been efforts. I mean, don't forget in the last decade, there was the proposal to build the Energy East pipeline from Alberta to eastern Canada. You know, I don't want to get too far into the weeds here, but there was the proposal to build the Keystone Exile pipeline from Alberta to the southern U.S. President Obama had rejected that proposal.

So it was off the boards until President Trump began his first administration, and he re-approved basically that pipeline. So during that time, the Energy East pipeline was being planned. In the end, T.C. Energy decided to go with Keystone XL, which, as we know, was rejected once again when Joe Biden was elected president. And Energy East fell by the wayside. So how do higher prices for oil and the war more generally affect the politics of pipeline projects in Canada? There are a lot of other things at play here, but certainly it doesn't hurt the cause. I'm talking to you from Alberta, and I've been here for long enough to know that I have not seen a crisis where somebody in the province won't see that as a reason to build more pipelines. Don't forget, there's a lot of other factors at play here, including buy-in by indigenous communities across BC.

there's the oil industry's commitment to reduce carbon emissions from the oil sands. So a lot of big factors there that are still at play. And we don't have a decision on pushing that MOU forward yet. We'll be right back. Jeff, let's dig into the effects of these higher oil prices. Can you list the ways in which Canadians will start to feel the pressures beyond what they pay at the pump? Sure. I mean, we saw it today.

Take a look at interest rates. the Bank of Canada held steady, fearing the impact of oil prices and its inflationary effect on the Canadian economy. So that's one way. So if Canadians were hoping for a break on their mortgage rates, they're not going to get it. Another has to do with prices just about everywhere else. You know, food and other goods have to be shipped around the country. All of that takes various types of fossil fuel, whether it's gasoline, jet fuel, whether it's diesel fuel. So those effects are going to be felt in just about every price we pay for goods. And don't forget travel. We've already seen the airlines talking about raising fares to deal with higher jet fuel prices

and in some cases slapping on an extra surcharge to every ticket. So travel is affected as well for Canadians. And then of course plastics, right? Everything that's made with plastics, that's going to go up in price. Yeah. So, Jeff, let's say the war ends. How How quickly could we see supply ramp back up and maybe bring prices down? The big thing will be assessing the damage to oil facilities in the Persian Gulf areas. A lot of those Gulf producers have either started to reduce production now to deal with storage that has quickly been filling up or have had actual attacks on infrastructure. it won't be a situation where those countries will be able to flip the switch back on

and immediately start shipping the types of volumes they were before these attacks began. So there will be a lag time there for sure. I'm curious. Do you think that oil will ever go back down to the price we saw it at before the war, so like the $60 a barrel we talked about? Or will this shock be built into the price of oil going forward? Anyone relying on me for a forecast on oil prices should probably order another cocktail. But I will say this.

Tell us what's happening, Jeff. Help us. I will say this, that oil prices have over the decades been extremely volatile for various reasons. If we take a look at previous conflicts, they surged. Anytime there's a disruption, oil prices can get overheated and, rise intensely. Any time where there is an economic downturn, or, I mean, as we saw during the pandemic, prices even went negative for a couple of days in the early parts of that. Do I think that at some point oil prices will get back to where they were before the conflict? Yeah, probably. But they may get higher before they get there. I'm just curious, though, does this mean that companies

that produce oil in Canada, will they be able to sell at a higher price as well? Like, there is a bit of a silver lining, right? They do sell at a higher price. Obviously, their cash flows are going to rise with the price of oil, especially when it wasn't expected. It's kind of a windfall for them. The question is, what are they going to do with that cash? Yeah, does that trickle down to help the Canadian economy? It could. They could put more capital spending into increasing production, which would have a short-term impact on the Canadian economy. But, you know, certainly the the word from the oil industry has been, we've set our budgets already and we're not going to adjust them to a large degree to deal with what may be a short-term jump in prices. So certainly

the investors in oil companies on the TSX have been, you know, enjoying a sharp rise in those prices for those stocks. Another beneficiary here, and this is a big one, will be the Alberta government. Because remember, just before this began, it projected a nine more than $9 billion deficit based on oil prices in the $60 range. So this will certainly help their finances. Is there anything that the government could do with that revenue that could help consumers who are paying up front for these price increases? Don't expect Ottawa to start regulating oil prices.

It went through that process in the early 1980s to disastrous effect, especially when you've got this simmering separatist sentiment in Alberta, it would probably cause riots in the streets of downtown Calgary. But one thing that has been done in the past when prices have risen, and I think Alberta did this when prices jumped at the beginning of Russia's attack on Ukraine, is removing various taxes at the pump. For instance, road taxes, there's various things that are packed on to gasoline prices. So that's one way that governments are probably able to give motorists a break during this time. Okay. Before we wrap up, Jeff, I want to talk about some of the action governments around the world are taking to try and mitigate the effect of lower oil supply.

The big one has been the release of some of the world's strategic reserves of oil. This is being coordinated by the International Energy Agency, IEA, which is a coalition of 32 countries, and they're releasing 400 million barrels of oil over the next several months. What impact will that have on prices? That sounds like a lot, doesn't it? It does sound like a lot, yeah. But when you think about what's been taking off the market, which is about 20 million barrels a day, just to give you some perspective here,

If the IEA volumes were used to completely replace what's been lost in the Persian Gulf, that oil would be finished in 20 days. So really what we're talking about here is an effort to calm markets and bring down prices for a limited amount of time. So we're looking at three months to six months, but it does not completely deal with the shipments that have been choked off at the Strait of Hormuz. Okay. So it sounds like it's not about bringing prices completely down.

It's kind of about stabilizing prices. Stabilizing prices and bringing some calm to markets that are starting to deal with shortages. That's a good reality check. Just to end here, Jeff, you've been covering oil markets for a long time now. And I wanted to know what this moment has taught you about energy security on a global scale. It's taught me that we have improved our ability. to deal with these crises from the 1970s. There's definitely been improvements,

especially in North America, where shortages are not a concern. But at the same time, we could have been building more resilience than we have. Obviously, we know what the answer is, right? The transition to electrified transport, more renewable energy to produce electricity. All of these things are proven to,

give us more options when it comes to powering and fueling our economy. There are more than enough economic reasons to make this transition to cleaner energy. Of course, the other major beneficiary of this would be the climate, which is an issue that remains a crisis, even though we're not talking about it as much anymore amid the war. So, Jeff, when you talk about resiliency, it does seem like at this point we are still quite vulnerable to the price of oil and the use of fossil fuels. That's exactly right. I mean, we've come a long way when it comes to boosting our options away from fossil fuels as a society and around the world. But the current crisis shows that we have a long way to go before we are able to rely on.

a lot of different options at once and cut the severity of crisis in fossil fuels, as we've seen just over the last two and a half weeks. Okay, Jeff, I think that's a good point to end on. Thanks so much for coming on the show. Great to be here. That was Jeffrey Jones, a journalist with a Globe's report on business. That's it for today. I'm Cheryl Sutherland.

Our intern and associate producer is Finn Dermot. Our producers are Madeline White, Rachel Levy McLaughlin and Mahal Stein. Our editor is David Crosby. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening.