Rising oil prices will affect Canadians ‘across our economy,’ experts say – National
Rising oil prices from the Iran war will hit Canadians “throughout our economy,” experts say.
“Rising energy costs won’t just be felt at the tap. It will be an additional layer of cost and strain on our entire economy, impacting everything from jet fuel to trucking and transportation costs,” said Bryan Detchou, executive director at the Canadian Chamber of Commerce, in a statement.
“Rural communities, where diesel is sometimes needed, may find this difficult. Rising transport costs will increase the prices of groceries and everyday goods such as plastic, food, fertiliser, clothing, electronics, furniture and household goods.”
Iran has effectively closed the Strait of Hormuz by threatening to attack almost any ship that passes through the vital Persian Gulf, which accounts for about 20 percent of the world’s oil.
Oil tankers and cargo ships have been avoiding the narrow waterway for about a week, meaning oil and other supplies are at risk of spillage.
Also, Iran has been attacking targets in the Gulf region and beyond, including oil and gas infrastructure in neighboring countries such as Qatar.
“Everything we do depends on oil as a product or directly as a source of energy for us, even turning on our computer, for example,” said Andre Cire, associate professor of operations management and supply chain analysis at the University of Toronto’s Rotman School of Management.
“So, the whole society is connected to oil, and energy – everything is connected to oil.”
Oil prices reached around US$120 per barrel over the weekend before falling back below $100 late Monday. That’s up from about $64 days before the US and Israel launched the first wave of strikes on Iran on Feb. 28.
When the price of oil rises, often the cost of gas and other fuels also rises.
Higher oil prices = higher fuel costs
When a business faces higher costs of its operations and supplies, including fuel, it will often charge its customers more or get that increase by taking less profit.
Gas prices have already risen sharply since the outbreak of the war, with the national gas price sitting at C$1.54 in the normal range as of early Monday — up more than 20 cents last week, according to the CAA. Diesel fuel, which is widely used in commercial and transportation vehicles, is generally more expensive.
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“Any kind of transportation system in Canada again, because the price of oil will increase. If you order your product on Amazon, your Prime delivery, one day, unfortunately, that will probably increase over time because the ship will be more expensive,” said Cire.
Global News sent requests to both Canadian National Railway (CN Rail) and Canadian Pacific Kansas City Railway (CPKC, formerly Canadian Pacific Railway), as well as the Canadian Trucking Alliance, to see if they expect higher oil prices to translate into higher transportation costs.
No one responded to the publication.
Air freight costs will also become more expensive for consumers and businesses as airlines face higher fuel costs.
“This is absurd – there will be a rapid increase in the cost of jet fuel. That will be absorbed by the airlines or passed on to the consumer or a combination thereof,” said Martin Firestone, president of Travel Secure Inc.
“The next problem will be the lack of fuel, and the cancellation of flights because we don’t have fuel. That will be a big problem when it gets to that point.”
Customers who have already booked their flights will have those ticket prices locked in, but new bookings may be more expensive. At the same time, there could be more volatility for air travelers because higher fuel costs and potential shortages mean some carriers may need to adjust schedules.
WestJet tells Global News that the war in Iran has already made flights more expensive, but would not comment on a fuel shortage that may have affected the schedule.
“Fuel is a major input cost for the airline. The recent sharp increase due to the situation in Iran has made operating flights more expensive, based on this, further price adjustments may be necessary,” a WestJet spokesperson said in a statement.
“We will continue to monitor the situation and respond accordingly, while remaining committed to providing our guests with affordable airfare.”
Air Canada also responded to Global News on Monday.
“We cannot speculate (and are not legally permitted to comment) on future prices, but our prices vary depending on many factors, including the price of jet fuel,” an Air Canada spokesperson said in a statement, adding that customers are presented with the total effective price and its discount before purchasing a flight.
“The full effective price and breakdown is provided to customers before they purchase their flights.”
Porter Airlines told Global News in a statement that “it is too early to predict how this may affect ticket prices, but we are closely monitoring the situation.”
A similar request sent to Air Transat has not received a response.
Expensive oil, expensive plastic
Oil can also be refined into products known as petrochemicals, and are used to make various plastics, rubber, synthetic fibers and industrial solvents.
This is why the price of plastic tends to rise with the price of oil.
“Oil is actually an important component in any type of plastic, but also in electronics and many other types of manufacturing goods. There is no other sustainable way, as far as I know, to produce plastic, and plastic is in everything, in our phones, everything,” said Cire.
“We [Canada] we have a lot of refining capacity, we are very strong in that, but we don’t have the capacity to produce all the plastics we need. So packaging, everything that indirectly depends on oil, will also go up. “
How the Canadian economy can benefit
Canada stands to gain from the risk of an Iran war in global oil markets due to higher oil prices and an expected increase in demand, experts say.
As oil prices are set around the world, higher prices translate into rapidly rising revenues for Canadian oil companies such as Suncor Energy, Canadian Natural Resources and Cenovus Energy, as well as the government due to collected taxes.
Alberta’s government has suggested higher oil prices from the Iran war could help offset higher revenue, while Saskatchewan said it would also see more revenue generated.
“Think of the West – Alberta, Saskatchewan – they benefit a lot from rising crude oil prices, from contracts, from tax revenue,” Cire said.
“Canada is a big contradiction, there’s a lot of confusion going on here, because somehow, we get a lot of benefits from the oil boom..”
Then there is the demand side.
If the Strait of Hormuz is blocked cutting off 20 percent of the world’s supply, then Canada can be seen as a resource to help offset that decline.
Those benefits can only be realized if the war continues for a long time.
“Canada is a producer and exporter of oil and gas and will be even more next year. [the Iran war] the more we continue, the better off we’ll be,” said John Kirton, a retired professor of political science at the University of Toronto.
“I think the broad negative side effect is that all the products we buy are used as petrochemicals, like plastics. A lot of consumer goods, toys, will suffer a lot if this continues. However, there are many sectors that will benefit from the better position Canada is in.”
