Risk of Recession in Canada Climbs as Oil Prices Surge Amid Iran Conflict

Surging oil prices triggered by escalating tensions in the Middle East are raising serious concerns about a potential recession in Canada. As energy costs climb and economic growth slows, Canadian consumers and businesses are beginning to feel the strain, increasing the risk that the country’s already fragile economy could tip into a downturn.

As we all know, the U.S. and Israel launched attacks on Iran on February 28. Tehran responded with strikes on Israel, Saudi Arabia, and other nations in the Middle East. Iran has also closed passage through the Strait of Hormuz, the world’s most important marine chokepoint, responsible for meeting 20% of the world’s oil consumption.

While U.S. President Donald Trump has said that negotiations between the U.S. and Iran have been progressing, Iran has denied that such talks are taking place.

So, of course, uncertainty about the war in Iran and when it will end has been wreaking havoc on oil prices and the stock market.

How Is the War in Iran Affecting the Global Economy?

In March, crude oil prices registered their highest monthly gain after the war in Iran hammered the global economy, disrupting global oil and gas supply. During the month, the price of Brent crude oil surged more than 60%, almost touching $120.00 per barrel. West Texas Intermediate (WTI), the U.S. benchmark, jumped more than 55%, closing the month out at around $105.00 per barrel.

The war in Iran is also hurting global stocks. The S&P 500 is on a four-week losing streak, now trading at its lowest level since July. The index is down approximately 8.5% from its previous high, putting it close to correction territory.

The Dow Jones Industrial Average is already in correction territory, down more than 12% from its record February highs. The Toronto Stock Exchange (TSX), Canada’s main index, is down roughly seven percent from its early March high. The TSX has fared a little better than its American counterparts, protected in part by the large energy component.

Will the War in Iran Lead to a Recession in Canada?

A massive increase in global crude oil prices also means a big jump in gasoline and diesel prices. And that increased cost is cutting into consumer spending, with Canadians spending less on everything from groceries, clothing, furniture, entertainment, and going out.

Increased crude oil prices are a boon for energy companies, but they’re a major headwind for the rest of the economy. It’s difficult to change your driving habits, which means the extra costs cut into other areas. Higher crude oil prices for a sustained period could put strain on the already weak Canadian economy, increasing the likelihood of a recession in Canada.

In 2025, Canada’s gross domestic product (GDP) expanded at 1.7%, the slowest annual growth since the 2020 pandemic. In the fourth quarter of 2025, Canada’s GDP contracted 0.2%.

In January 2026, Canada’s GDP grew just 0.1%.

Analysts expected the Canadian economy to grow 0.2% in February, but March’s GDP expectations will be a lot more muted.

It’s not just the war in Iran that is hurting the Canadian economy. It’s been more than a year since President Trump announced his global tariffs. This has resulted in reduced business investment, rising unemployment, and rising inflation. All of these issues are a threat to the finances of everyday Canadians.

This doesn’t mean that the Canadian economy will slip into a recession in 2026, but it wouldn’t take much for that to happen to the sputtering economy.

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