A global supply shock triggered by war in the Middle East is rippling through Canada’s economy, pushing up costs for farmers, businesses and consumers even as surging

energy prices boost the outlook for oil and gas producers and fuel exporters.

Less than two weeks after the United States and Israel’s strikes on Iran effectively shut the world’s most important oil transit route — the

Strait of Hormuz —  the fallout is quickly spreading beyond energy markets, with shipping disruptions already jamming

grain sales for Canadian farmers. Grain that was originally bound for the Middle East is now being delayed or redirected to other markets such as China and India, according to grain brokers, temporarily swelling supplies in those regions and weakening demand for Canadian pulse crops like peas and lentils.

“None of our traders at the coast want to take product in Vancouver to export because they’re not confident when they would be able to ship it to India or China,” Chevy Johnston, chief executive of Johnston’s Grain Ltd., a Canadian agricultural brokerage, said.

“They don’t want to be stuck holding inventory, uncertain about when they can send it and what it’s going to cost them, so they’ve backed off their bids. The bids basically just dried right up.”

More worrying than the disruption to trade routes is the potential for a “calamitous” loss of physical oil supply in the coming weeks, experts say, after nearly seven million barrels per day of

oil production capacity from Saudi Arabia, Iraq, the United Arab Emirates and Kuwait have been shut in due to the closure of the Strait of Hormuz.

The International Energy Agency announced on Wednesday that its member countries would release 400 million barrels of oil from their emergency stocks — the largest reserve release in history in response to rising prices and the risk of a supply shock.

Crude prices have surged nearly 40 per cent since the start of the year, reaching almost US$120 per barrel on Monday as the conflict choked the flow of roughly one-fifth of the world’s oil supply. Prices for refined fuels are rising even faster, market watchers warn, including gasoline, diesel, propane and jet fuel, which climbed over US$200 per barrel in Singapore last week as airlines scrambled to secure supply.

Natural gas prices are also climbing after shipments of liquefied natural gas (LNG) stopped leaving Qatar — the world’s second-largest LNG exporter — five days ago, Bloomberg reported Wednesday.

Even if the crisis ended today and the strait reopened, it would take time to bring some of the lost production back online, said Rory Johnston, oil market researcher and founder of Commodity Context.

“Right now, there is no base case forecast,” the former Scotiabank economist said.

“The question on everyone’s mind — and what the market is attempting to handicap in real time — is essentially how long the strait remains closed and what the White House is going to do in the interim to soften this calamitous loss of supply.”

Higher oil prices — and the ripple effects on gasoline, transportation, food and manufacturing costs — could weigh on consumers and businesses for the next few months, the U.S. Energy Information Administration said this week.

The agency sharply raised its price outlook for the second quarter, forecasting benchmark U.S. West Texas Intermediate crude will average US$84.56 a barrel from April through June, citing supply disruptions linked to fighting in the Middle East.

However, a number of crude market analysts, including Rory Johnston, warn that forecast could prove optimistic if the closure of Hormuz drags on or more production is shut in.

The market has yet to feel the full impact of the disruption because tankers that left the region before the closure are still arriving at their destinations, meaning the full supply gap has yet to hit global markets, the oil researcher said. It typically takes oil tankers about six weeks to complete those voyages, he noted.

“What this is is a physical scramble for barrels,” he said. Asian refineries could find themselves “within a week or two, desperately short of crude.”

Meanwhile, energy stocks have surged alongside oil prices, boosting cash flows for Canadian energy producers. The rally has upended expectations going into 2026 that a global supply glut would keep prices in check.

Producers and energy investors are welcoming the unexpected windfall, but the industry also knows that beyond a certain level, extreme price spikes can backfire by triggering “demand destruction” as consumers and businesses cut back.

AltaGas Ltd. chief executive Vern Yu  — whose company ships propane to Asia from its export terminal on the B.C. coast — said on a conference call Friday that the premium for selling cargoes into Asia has increased by nearly 50 per cent since the start of the year.

But Yu also signalled the company is taking a conservative approach — having hedged around 80 per cent of its export volumes for the year — rather than banking on the possibility of larger returns from the geopolitical turmoil.

“We’re perhaps being a bit cautious,” Yu said. “But if this continues to play out where the straits are shut down for an extended period of time, I think we’re in a good position with our current financial hedges that we don’t really need to do any more.”

Rising energy costs are already filtering through the broader Canadian economy.

Higher jet fuel costs are making flights more expensive to operate, a

WestJet spokesperson said, adding that “further pricing adjustments may be needed.”

Consumers are also likely to feel the downstream effects of rising fuel and fertilizer costs for farmers.

Chevy Johnston said suppliers of pesticides and other agricultural chemicals are warning that prices could soon jump. Container shippers have already added a “war premium” on some routes to cover higher fuel costs and war-risk insurance.

Having weathered the shipping turmoil of the COVID-19 pandemic, the grain trader said the early days of a supply shock are often the most chaotic.

“This will be the worst of it,” he said. “It’s pretty hard to just hit stop on global trade flows. It’s kind of a slow, lumbering machine.”

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