Higher crude puts Alberta on track to erase a $9.4 billion deficit
Oil settled more than 9 percent higher on Monday at a one-month high after the United States confirmed a naval blockade covering Iran's entire coastline, ports and oil terminals, reviving concern over energy shipments through the Strait of Hormuz.
Brent crude futures rose US$7.29, or 9.59 percent, to settle at US$83.30, according to Reuters, while US West Texas Intermediate gained US$6.73, or 9.42 percent, to US$78.14 a barrel.
Reuters noted Brent posted its largest single-day dollar gain since April 2.
For investors weighing commodity exposure, the conflict has reset the band oil is likely to trade in.
Marko Papic, chief investment strategist at BCA Research, told BNN Bloomberg the war has created a range of roughly US$70 to US$95 a barrel for Brent, below the US$95-to-US$120 range he tied to the height of the fighting, when markets were less certain the two sides could de-escalate and reopen the strait.
He argued the causation runs opposite to what many assume.
Papic told BNN Bloomberg that oil prices "are what are catalyzing kinetic activity," with both sides acting more aggressively at comfortable price levels and stepping back as prices climb.
Both sides will "step off the gas" once prices reach US$90 to US$95, he said.
He cautioned that the interim memorandum of understanding restored only 40 percent of blocked oil traffic, leaving 60 percent unresolved, and said the worst-case outcome remains possible.
Higher prices have already transformed one Canadian budget.
Alberta, which projected a $9.4bn deficit in February, is now on track for a modest surplus if crude holds near US$70, Trevor Tombe, an economics professor at the University of Calgary, told CBC News.
Tombe put the likely surplus near $5bn, a swing of about $14bn in a matter of months.
"The budget is incredibly sensitive to every $1 change in the price of oil," he said, noting the province's estimate that each US$1 move adds roughly $680m to annual revenue.
The February budget had assumed WTI would average US$60.50 a barrel; instead, according to CBC, prices spent much of the spring and summer above US$70 and at times topped US$100 amid the US-Iran hostilities.
Economists warned the turnaround is fragile.
Charles St-Arnaud, chief economist for Servus Credit Union, attributed the improvement entirely to higher oil prices rather than broader economic strength, CBC reported.
The province struck a similar note through Juliana Rodriguez, press secretary for Finance Minister Jason Nixon, who said in a statement that officials "cannot base projections for the entire 2026–27 fiscal year on recently elevated oil prices."
Tombe said Alberta would slip back into deficit if crude averaged below about US$68 for the rest of the year, adding, as per CBC, that "we really shouldn't be counting our fiscal chickens before they hatch next year."
The war is also feeding through to broader price pressures relevant to inflation-linked liabilities.
Papic told BNN Bloomberg that a strengthening El Niño could lift agricultural prices, with wheat and cocoa most exposed, straining import-dependent economies such as Egypt and Turkey.
In the United States, gas prices have risen 34 percent since the war began, to a national average just under US$4 a gallon, while diesel has climbed almost 36 percent to US$5.10, according to AAA data cited by The New York Times.
Supply buffers are thinning.
US Strategic Petroleum Reserve stocks fell by about 3m barrels last week to 316.5m barrels, the lowest since April 1983, Reuters reported, citing Department of Energy data.
Ukrainian strikes on Russian refineries and depots have tightened diesel supplies further, the Times said.
Reuters reported that Goldman Sachs expects expanded Middle East pipeline capacity to shield more than 60 percent of pre-war Gulf exports from future Hormuz disruptions by the end of 2028.
Near-term escalation risk remains.
Iran has asked Yemen's Houthi movement to be ready to close the Red Sea route if the US strikes its power infrastructure, three sources told Reuters.
"With the Strait of Hormuz already closed, this threat raises the serious risk of both of the Middle East's primary oil export routes being disrupted at the same time," said Alex Hodes, director of energy market strategy at StoneX.
