Another shock for the beleaguered world economy
U.S. President Donald Trump, pictured delivering the State of the Union address. / WHITE HOUSE PHOTO
The world economy was struggling to adjust to President Donald Trump’s upending of trade patterns even before the U.S.-Israeli attack on Iran mostly closed the Strait of Hormuz, which handles 20% of global oil supply.
As the price of crude continued to soar this week, stock markets fell amid worries that the war will significantly disrupt global crude supplies.
And it was completely unclear how bad the situation will become. Just a week into the conflict, with fighting spreading across the Middle East, Qatar's energy minister suggested that all Gulf energy exporters may shut down production within days, which could push Brent crude to $150 a barrel, the Financial Times reported.
While North America is generally self-sufficient in oil and probably won’t face the gas station line-ups seen in the 1970s oil shocks, today’s crisis could decimate global growth.
Even before the war, world GDP growth was predicted to slow to 3.1%, according to the International Monetary Fund.
In Canada, the reverberations from the war will be felt across the economic spectrum. Businesses will be confronted with broken supply chains, higher air fares and increased input costs for everything from fuel to fertilizer. Higher energy prices could eat into households’ already strained discretionary spending, lowering demand and growth potential for the economy. On the financial side, the upward pressure on prices caused by the disruption of oil supply could impinge on the Bank of Canada’s options to further reduce interest rates to bolster the economy.
Politically, the conflict will strengthen Carney’s hand when it comes to funding development of a much-expanded Canadian defence industry. It will likely also increase pressure for more energy exports, including possibly a pipeline or a major expansion of the Port of Churchill in Manitoba.
And there are suggestions that the current supply crunch could turn out to be of benefit to Canada as an energy power.
The Globe and Mail identified several Canadian upstream oil producers that will benefit from the war-related jump in crude oil prices.
Indeed, with recent developments in the Middle East, Canada is in a unique position to step up as a stable, secure supplier of oil to the rest of the world, Eric Nuttall, senior portfolio manager at Ninepoint Partners, told BNN Bloomberg News.
“I don’t think anybody ever would have contemplated the world could lose 20% of LNG (liquefied natural gas) supply and up to 20% of oil supply, all within 24 hours,” he said, adding the sudden upheaval in the world energy market presents Canada with a massive opportunity.
And, although it is too early to speculate on the impact of the war on U.S. relations with Ottawa, Canada’s position as a reliable energy source might now turn out to be a much-needed advantage in the upcoming review of the Canada-U.S.-Mexico free-trade agreement.
Despite higher costs at the pump for consumers, Trump said Thursday he was not concerned about upsurging oil prices. He said prices would drop “very rapidly when this is over.” But as of Friday, there was no end in sight in the widening war.
