Iran War Keeps Oil Near $100 as Strait of Hormuz Standoff Continues

West Texas Intermediate is trading near $101 a barrel and Brent crude near $106 as the United States and Iran trade demands over a possible end to the war and the reopening of the Strait of Hormuz, the maritime chokepoint that handles roughly a quarter of seaborne global oil. The market has settled into a tense holding pattern, with oil prices well above the level that prevailed before the war but below the spikes seen in earlier weeks.

For Canada, the conflict has produced an unusual macroeconomic moment. Canadian oil producers in Alberta and Saskatchewan have benefited from elevated prices, even as Canadian consumers and manufacturers face higher fuel costs and persistent inflation pressures. The Bank of Canada has been explicit in pointing to the Iran war as one of the most significant external risks to its forecasts.

The mid-May market posture has been shaped by the Trump-Xi summit in Beijing this week, with both governments expected to discuss the conflict and its energy implications. Oil markets had nudged lower on hopes that the summit might break the diplomatic logjam between Washington and Tehran, although traders remain cautious about how much progress will be made in the meeting.

How the war is shaping markets

Brent crude has surged more than 55 per cent since the Iran war began, hitting nearly $120 a barrel at its peak before easing back. The continued elevation reflects ongoing concerns about supply disruptions, possible escalation through the Strait of Hormuz and the broader strategic uncertainty in the region.

The Strait of Hormuz remains functionally closed, with Iran's military signalling it will retaliate after the United States Navy seized an Iranian-flagged cargo ship. The strait has periodically been reopened to limited traffic during brief de-escalation windows, but it has not functioned at its normal capacity since the conflict escalated earlier in the year.

Saudi Arabia, the United Arab Emirates and other regional producers have been ramping up exports through alternative routes, including pipelines that bypass the strait. Those alternative routes carry meaningful volumes but cannot fully substitute for normal traffic through the Strait of Hormuz, leaving global markets structurally tight.

Diplomatic state of play

United States officials have indicated that the two countries are close to a one-page, 14-point memorandum of understanding that would formally end the war and lift restrictions on the strait. The terms have not been published, and the trajectory of negotiations has been marked by repeated reversals as both sides have moved between conciliation and escalation.

Trump has said that Iran will be bombed at a much higher level if it does not agree to a peace deal, language that has underscored the fragility of the negotiations even as channels remain open. Tehran has continued to demand the lifting of sanctions and the return of frozen Iranian assets as conditions for any deal.

European partners, including Germany, France and the United Kingdom, have been pushing for a structured agreement that would include verification provisions and longer-term commitments on nuclear development. Russia and China have been pushing for an end to the war on terms that ease pressure on the Iranian regime, while also working to maintain their commercial relationships with Tehran through the conflict.

The Canadian impact

Canadian Western Select, the heavy oil benchmark that anchors Alberta's oil sands production, has tracked Brent crude higher through the conflict, narrowing its historic discount to the global benchmark. Producers have used the higher revenues to accelerate dividends, pay down debt and continue investing in carbon capture pilots, although the pace of major new production growth has remained relatively measured.

For Canadian consumers, the picture is less rosy. Gasoline prices have remained elevated through the spring driving season, and trucking and aviation fuel costs have continued to weigh on costs across the supply chain. Inflation, which had been on a steady downward trajectory before the war, has been pushed back up by the energy shock, and the Bank of Canada has flagged that it may need to keep interest rates higher for longer if oil prices remain elevated into 2027.

For airlines, manufacturers and freight companies, the conflict represents a sustained margin pressure. Canadian airlines have continued to add fuel surcharges and adjust capacity decisions in response to the elevated price environment. Manufacturers have been working to lock in longer-term contracts where possible to manage exposure to short-term price spikes.

Strategic implications

Beyond the immediate economic effects, the conflict has reshaped Canadian thinking about energy security. The federal government has accelerated work on the national electricity strategy, in part to reduce long-term Canadian dependence on imported fossil fuels for end-use sectors such as transportation. The strategy, announced this week, frames grid expansion and nuclear development as core elements of national energy resilience.

Canadian Forces have continued to coordinate with allied partners in the region. Royal Canadian Navy assets have participated in allied maritime operations protecting commercial shipping, and Canadian intelligence cooperation with the Five Eyes partnership has been an important element of allied response planning.

The wider Middle East security environment has been deteriorating alongside the Iran war. The Gaza ceasefire remains fragile, and broader regional dynamics have been shaped by the parallel pressure on Israel, the Gulf states and the United States. Canadian humanitarian funding for the region has been adjusted to reflect the new operational environment.

The Strait of Hormuz risk

The Strait of Hormuz remains the most consequential single chokepoint in global energy markets. The waterway carries crude and refined products from Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Iraq and Iran. The risk that Iran could close the strait, either through military action or through asymmetric tactics, has been the central market concern since the conflict began.

Trade flows through the strait have been disrupted but not entirely halted. Major shipping companies have adjusted insurance pricing and routing in response to the heightened risk, and some companies have suspended transits during periods of acute escalation. The longer the strait remains under stress, the more those adjustments build up and feed into structural increases in shipping costs.

Alternative routes through pipelines from Saudi Arabia and the United Arab Emirates have been operating near capacity. Those pipelines, including the Petroline and the Habshan-Fujairah pipeline, can carry meaningful volumes but cannot fully replace the strait. Markets continue to price in the risk that any escalation could quickly tighten global supply further.

The fiscal channel

For federal and provincial governments, the elevated oil price environment is producing both upside and downside fiscal effects. Alberta's resource revenue has been significantly stronger than the province's pre-conflict projections, easing fiscal pressure on the provincial government and giving it room to manoeuvre on other files. The federal government has similarly benefited from higher resource revenue collected through the oil and gas sector.

Those upside effects are partially offset by inflation-related fiscal pressures elsewhere. Cost-of-living measures, energy assistance programs and the broader economic effects of elevated prices weigh on government balance sheets. The Spring Economic Update has reflected those mixed dynamics, with the federal deficit ending up smaller than initial projections despite significant new tariff-response spending.

For Newfoundland and Labrador, where offshore oil production is a significant element of the provincial economy, the elevated price environment has been particularly meaningful. The province has been using the additional resource revenue to fund a range of priorities, including health care, infrastructure and population growth strategies.

What it means for Canadians

For Canadian households, the most immediate consequence of the war is at the gas pump. Prices have stayed elevated through the spring, and the federal government has so far avoided major intervention. Provincial governments in Atlantic Canada and elsewhere have considered temporary tax relief measures, but none have moved decisively to offset the energy price effects.

For Canadian businesses, the conflict reinforces the importance of supply chain resilience and energy efficiency investments. Companies with significant fuel exposure have been refining their hedging strategies and looking at longer-term contracts to manage volatility.

For Canadian energy producers, the elevated price environment has been a windfall, although capital discipline and shareholder return commitments have kept the new investment cycle measured. Cash flowing back to shareholders and to debt reduction has been the dominant pattern across the sector.

Iranian-Canadian community concerns

For Canada's Iranian community, one of the largest Iranian diaspora populations outside the Middle East, the conflict has produced significant personal anxiety. Family members in Iran face the daily realities of wartime conditions, and the prospect of further escalation has been a source of sustained concern. Community organisations have been engaged with the federal government on consular issues, immigration questions and humanitarian advocacy.

The Canadian government's posture has been to maintain firm opposition to the actions of the Iranian regime while supporting humanitarian access and protecting the rights of Iranian-Canadian families. The federal government has continued to engage with diaspora organisations through formal consultation channels and through community engagement initiatives.

For Iranian-Canadians, the conversation about the future of Iran extends beyond the immediate war. Many in the diaspora have been engaged in long-term advocacy for democratic governance and human rights in Iran, conversations that will continue regardless of the trajectory of the current war.

What's next

The Trump-Xi summit in Beijing this week could shape the next phase of the diplomatic conversation. Both leaders are expected to discuss Iran, with implications for both sanctions enforcement and for the possible end of the war. Oil markets will be watching closely for any signals coming out of the summit.

The Bank of Canada's next policy interest rate decision is scheduled for June 10. Markets are expecting the central bank to hold rates steady at 2.25 per cent, although the policy outlook will depend significantly on the trajectory of energy prices and inflation through the late spring and into the summer.

For now, the Iran war continues to anchor a higher-price oil environment that is reshaping Canadian markets, government policy and consumer experience. The path back to a stable global energy market runs through diplomatic decisions being made in Tehran, Washington and Beijing, and the consequences of those decisions will be felt by Canadians for months and years to come.