Crude Nears $120: How High Oil Prices Affect the Canadian Economy

Crude oil prices are surging again, climbing toward levels not seen in years as geopolitical tensions escalate in the Middle East. While rising oil prices can boost energy companies and oil-producing regions, they also ripple through the broader economy by increasing fuel costs, raising inflation, and pressuring consumers. With crude now approaching $120.00 per barrel, investors and economists are asking the same question: how will higher oil prices affect the Canadian economy?

On February 28, the U.S. and Israel launched a number of attacks across Iran. Tehran responded with strikes on Israel, Saudi Arabia, Jordan, Kuwait and the UAE. In just a matter of days, the price of crude oil surged from $65.00 to $75.00 per barrel, with analysts predicting that crude could soon cross the $100.00-per-barrel mark.

How Is the War with Iran Affecting Stocks?

On March 9, a week later, West Texas Intermediate (WTI), the U.S. benchmark, touched $119.48 per barrel. Brent Crude, the international benchmark, also passed $119.00 per barrel.

How much higher could crude oil prices go? Let’s just say that we’re still in the early days of the war in Iran.

Qatar’s energy minister said that if the war drags on, it could result in significantly higher oil prices and slow the global economy. In the Middle East, this could result in a suspension of exports. This region is the world’s largest supplier, responsible for approximately 32% of the world’s total daily oil production.

On top of that, marine traffic through the Strait of Hormuz has been shuttered since the war began. The narrow passage between the Persian Gulf and Gulf of Oman is one of the most strategic shipping routes for oil and gas, through which, 20 million barrels of oil pass every day.

Should oil and gas tankers not be able to travel safely through the Strait of Hormuz, crude prices could rise above $150.00 per barrel before the end of March.

Not surprisingly, the war in Iran has been a boon to energy stocks. While the energy sector was one of the weakest performing sectors, today, it is the top-performing sector over the last three months, half year, and year to date, up 10%, 22%, 30%, and 25%, respectively. It is also up 35% over the last year.

The rest of the stock market has not responded as favourably, with global stocks sliding on fears of an economic slowdown, higher living costs, and inflation.

But while rising oil prices have boosted energy stocks, the broader economic implications are more complicated—especially for Canada.

How High Oil Prices Affect the Canadian Economy

Are high oil prices good for the Canadian economy?

Not necessarily. While higher energy prices may be good for oil and gas stocks, they could negatively impact manufacturing, global supply chains, and economic growth and spark inflation. That’s a bad combination for the stock market.

And we’ve been here before. During the 1970s energy crisis, inflation spiked, the Canadian economy tipped into a recession, and the Toronto Stock Exchange (TSX) experienced one of the worst stock market crashes in its history.

That doesn’t mean we’ll experience the same thing in 2026. But, should oil prices spike higher and remain elevated, the Canadian economy will experience pressure on growth and inflation. Energy accounts for six percent of the consumer price index (CPI), which means an increase in oil prices will have an immediate effect on headline inflation.

Again, energy stocks are expected to do well but overall, but at six percent of CPI, the sector will have a small impact on total real gross domestic product (GDP).

Moreover, higher oil prices mean higher prices for gasoline. Since the conflict began, gas prices have climbed as much as $0.16 per litre. That cost could rise much higher over the coming weeks. And higher gas prices cut into Canadians’ spending.

If there is a silver lining for Canadians, it’s that higher inflation reduces the changes that the Bank of Canada will raise its key lending rate, which impacts interest rates, later this year.

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