The closing of the Strait of Hormuz has been called one of the largest oil supply shocks in history, leaving some to wonder why prices aren’t even higher than they are.

“It’s a question that we are often asked,” Art Woo, a senior economist at Bank of Montreal , said in a note on May 15.

The United States-Israel war on Iran stranded about 20 million barrels per day of oil and oil-related products due to the closure of the Strait of Hormuz. Oil prices initially jumped, but have since held around US$100 per barrel.

There are a few reasons why people have so far been spared an even worse hit to their pocketbooks, though economists aren’t convinced the pain is contained.

Woo estimated three-quarters of the stranded barrels are crude oil, while the rest are crude-oil products such as diesel and jet fuel .

Faced with a bottleneck in the strait, Saudi Arabia and the United Arab Emirates have increased flows through pipelines they operate by about six million barrels per day, leaving the rest of the world to account for the remainder of the shortfall.

Supplies are being drawn from the sovereign petroleum reserve and countries such as Canada, Norway and Venezuela have increased production, Woo said.

Elevated prices, especially in countries that depend on the Middle East for their energy supplies, have also led to demand destruction, the economist said.

For example, some Asian and African countries have resorted to purchases of certain products and are dealing with power outages and reduced working hours.

There are other reasons the pain has been relatively contained, National Bank of Canada said, including a world economy that uses less oil per unit of gross domestic product and oil production that, prior to the start of the conflict, outpaced consumption by about four million barrels per day.

National Bank economist Jocelyn Paquet also said the rise in oil prices depends on the duration of the supply shock. In this case, the Iran conflict is still in its early days compared with the Arab oil embargo of the 1970s, which lasted five months.

However, both Woo and Paquet warned uncertainty looms over the outlook and energy prices.

For example, Paquet said she doesn’t think energy markets can count on further production increases.

“Even U.S. shale producers, reputed to be among the most agile and responsive in the world, would likely need three to six months before they could bring additional supply to the market,” she said in a note on May 15.

Absent a resolution to the nearly three-month-old conflict, Paquet predicts the world will continue to depend on governments’ strategic petroleum reserves and commercial reserves to make up for the oil shortfall.

She estimated those two sources have so far contributed 3.2 million and 4.8 million barrels per day, respectively, but said the U.S.’s reserves are on track to fall to their lowest levels since 1982 if the expected “drawdown” takes place.

“Other countries find themselves in a similar situation,” she said, warning that further demand destruction that spreads to Europe could be the only route to bringing energy prices to heel.

For now, other less tangible factors are keeping a lid on oil prices, Woo said.

“We suspect prices are also still being held back by hopes/expectations that the conflict will come to an end and the strait will reopen relatively soon,” he said.

He said he thinks Donald Trump will likely want Americans to be paying less at the pump in the run-up to the U.S. midterm elections in November.

At the moment, oil market futures predict West Texas Intermediate (WTI) will fall to US$80 per barrel by December, compared with US$105 as of May 15.

“Still, we can’t help but wonder if such a view may be slightly too optimistic,” Woo said.

  • Posthaste: Why the chances of a Canadian housing market rebound in 2026 have ‘slipped away’

Sign up here to get Posthaste delivered straight to your inbox.

International investors remained a “critical part” of the purchase of government of Canada bonds, according to economists at National Bank of Canada, following the release of Canada’s international transactions in securities for March.

Foreign investors’ ownership share of government of Canada bonds rose to a new monthly record in March of 40.9 per cent, Warren Lovely, Taylor Schleich and Ethan Currie said in a note on May 15, adding that during fiscal year 2025-26, foreign investors expanded their holdings by more than $60 billion.

“This is a non-trivial buying pace, equivalent to nearly two per cent of GDP on an annualized basis,” they said.

  • Today’s data: Canada consumer price index for April, building permits for March, U.S. pending home sales
  • Earnings: Home Depot Inc., Toll Brothers Inc.
  • Being sold private investments as a ‘hot deal’? Make sure it’s not too good to be true
  • Big Six bank valuations at all-time high, raising bar for earnings season
  • Canada needs transparent, consistent energy policies to attract investment

The tax-free savings account is a no-brainer for millions of Canadians looking to save money. The rules are seemingly straightforward: You make after-tax contributions annually within your contribution limit, the funds are invested tax-free, potentially forever, and if you withdraw them, or you die, they also come out tax-free. What can possibly go wrong? Apparently, for some taxpayers, quite a bit. Keep reading here to find out.

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors. Sign up here.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com .

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here