How the Iran conflict affects oil markets in Canada and beyond

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Will volatility and price spikes spur Canadian oil production?

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Canada is the world’s fourth-largest oil-producing country and it’s moving up. Birn estimated the Canadian oil supply will grow in 2026 by about four per cent to 5.5 million barrels per day, up from 5.3 million barrels in 2025. He said that potential growth amounts to 200,000 barrels of oil per day.

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“It’s one of these examples of the law of large numbers,” he said. “One or two per cent of a big number is a big number.”

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The greatest chokepoint for Canadian oil is the export capacity over land, Birn said, meaning there isn’t enough pipeline capacity to transport oil to market.

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The four per cent growth may already be “baked” into supply-and-demand market dynamics, but he said higher global oil prices would push up Canadian oil prices, which would motivate all producers to search for new ways to increase production.

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“The high-price environment we find ourselves in will certainly incentivize all producers in Canada to produce as much as possible,” he said. “And if it’s a protracted conflict, you could see expansions of drilling programs to really monetize that windfall and to accelerate production growth plans (in the years) ahead.”

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How likely is the conflict to grow into a protracted stalemate?

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Less than a week into the conflict, most oil market analysts are hedging any predictions about how long the military conflict in the Middle East plays out, with caveats that it is too early to tell and they cannot see too far ahead.

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Rory Johnston, an oil market analyst, earlier this week said in the Commodity Context newsletter on Substack that while shipping through the Strait of Hormuz has been “acutely disrupted,” it has not been halted.

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Moreover, he said the reports that Iran’s military intends to close the strait through its navy, land-based missiles and maritime mines are contradicted by other reports that the country has no intention of shutting down oil tanker traffic through the region.

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As of Monday, he said only three tankers had been observed making the journey, while three others had been hit by missiles. Since then, the U.S. and Israel have continued to strike Iran. Normally, around 80 tankers pass through the strait per day, and there are reports that hundreds of tankers are now awaiting passage.

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There should be more clarity in the near term, but Johnston said Iraq and Iran engaged in a years-long conflict known as the Tanker Wars between 1981 and 1987 that included bombing oil tankers passing through the region. Even then, the strait never closed outright.

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“Shipping continued all the while, however fraught, with around 450 ships attacked and damaged, 239 of which were petroleum tankers, of which 55 were either declared a complete loss or outright sunk,” Johnston said.

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Against this backdrop, he predicted, a “forced ‘closure’ of the Strait of Hormuz is still (currently) unlikely.”

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What could keep prices down?

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Jim Burkhard, head of oil markets research at S&P Global Commodity Insights, said the current situation represents history’s biggest oil supply disruption when looked at purely through the lens of how many barrels of oil have been kept from reaching their end markets.

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“It’s only been a few days now, but if you just look at the volumes, it’s the biggest by far,” he said.

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Still, Burkhard said Trump’s pledge to use the U.S. Navy to escort oil tankers and provide insurance as needed has largely calmed market jitters about the likelihood of a prolonged oil disruption.