Strait of Hormuz Closure Pushes Oil Past $110 With Canadian Pump Prices Rising

The Strait of Hormuz, through which roughly 25 per cent of the world's seaborne oil trade and 20 per cent of liquefied natural gas exports normally pass, has been effectively closed since the United States and Israel launched their war on Iran on February 28. Brent crude is now trading well above $110 US per barrel, with shipping data showing only a fraction of normal traffic crossing the chokepoint, and Canadian consumers are feeling the consequences in pump prices, grocery bills, and inflation expectations.

The shipping picture

Iran's Islamic Revolutionary Guard Corps issued warnings forbidding passage through the Strait at the outset of the conflict, and has reinforced those warnings with boardings, attacks on merchant vessels, and the laying of sea mines along approaches. Before the conflict, an average of 129 vessels passed through the Strait each day. Recent ship-tracking data show that number reduced to as few as eight vessels on some days, with weekly transit averages a small fraction of historical norms.

The International Energy Agency has characterised the disruption as the largest supply shock in the history of the global oil market. Although alternative export routes from the Persian Gulf, including the East-West pipeline through Saudi Arabia and the UAE's Habshan-Fujairah pipeline, have absorbed some of the lost flow, those alternatives are insufficient to replace the volume normally moving through Hormuz.

Maritime insurers have moved to dramatically higher rates for vessels willing to attempt transit, and several major shipping companies have suspended operations through the Strait entirely. Re-routings around the Cape of Good Hope and other long alternative routes have added weeks to shipping times and significantly raised costs for cargoes that do reach buyers.

The Canadian price impact

For Canadian consumers, the shock has shown up most visibly at the gasoline pump. Retail prices in major cities have moved well above their levels of a few months ago, with the highest pressure on regions that depend most heavily on imported product, including the Atlantic provinces and parts of Quebec. Western provinces, with closer access to Canadian crude through refineries, have seen smaller increases but have not been spared.

The Bank of Canada's April 29 interest-rate decision explicitly acknowledged the impact, with the central bank holding its policy rate at 2.25 per cent and warning that headline inflation will likely climb to roughly 3 per cent in April from 2.4 per cent in March. Statistics Canada's April CPI data, due May 19, will provide the first formal measurement of the latest jump.

Diesel and aviation fuel prices have moved similarly, with knock-on effects on freight costs and air travel. Ontario and Quebec manufacturers, already managing supply-chain disruption from US tariffs, now face additional energy-cost pressures that further compress margins. Trucking firms have begun adjusting fuel surcharges, and grocery distributors have flagged transportation costs as a contributor to higher shelf prices.

Implications for Canadian energy producers

For Canadian oil and gas producers, particularly in Alberta and Saskatchewan, the disruption is a complicated mix. Higher Brent prices benefit producers who can secure their oil to global markets, although much of Canadian crude continues to be priced against US benchmarks rather than Brent directly. Western Canadian Select, the heavy-oil benchmark for much of Alberta production, has gained against WTI but not as dramatically as Brent has against either.

The case for additional pipeline capacity to Asian markets, which Prime Minister Mark Carney described on May 1 as "more likely than not," has gained significant new weight from the disruption. Asian importers, particularly from Japan and South Korea, have been signalling appetite for long-term Canadian supply contracts as part of broader diversification away from Persian Gulf dependence.

Liquefied natural gas markets have also shifted. The LNG Canada project on the British Columbia coast, which began commercial exports in 2025, has become a more strategically important asset for both Canada and its Asian customers. Other Canadian LNG projects in earlier stages of development have seen renewed interest from prospective buyers.

Foreign-policy stakes

Canada's diplomatic posture during the Iran war has been carefully calibrated. Ottawa has supported allied positions in NATO and at the United Nations Security Council, while keeping its diplomatic options open through engagement with Gulf states, the European Union, and Asian partners. The federal government has also continued the broader pivot toward European defence cooperation through the SAFE programme and toward critical-minerals partnerships with Asian buyers.

Canadian dual nationals and Canadian residents with family in Iran face their own difficult position. Consular services have been operating under difficult conditions, with Canada having no diplomatic mission in Iran since 2012. Family reunification cases, sanction-related transfers, and travel concerns continue to be managed through partner missions and online channels.

Toronto, Montreal, and Vancouver all have substantial Iranian-Canadian communities whose ties to Iran make the conflict deeply personal. Community organisations have been advocating for stronger consular response, and have raised concerns about the broader treatment of Iranian-Canadian voices in policy debates.

Allied coordination

The G7 finance ministers' meetings, NATO defence ministerials, and ongoing European Union foreign-affairs councils have all worked through coordinated responses to the energy disruption. Strategic petroleum reserve releases by the United States and other International Energy Agency members have provided some short-term cushioning, although the available reserves are not large enough to fully offset a prolonged closure of the Strait.

Canada has participated in those discussions, with Finance Minister François-Philippe Champagne and Foreign Affairs Minister Mélanie Joly active across the relevant channels. Canada has not been directly involved in the military campaign against Iran, but has shared intelligence, supported sanctions enforcement, and contributed to humanitarian considerations including civilian protection in Lebanon and Gaza.

The broader question of how to bring the war to a sustainable end has been the focus of intermittent diplomatic efforts. A US-Iran ceasefire has been in place since April 8, but the underlying drivers of the conflict remain unresolved, and the Strait closure has continued despite the partial pause in direct hostilities.

Market response

Equity markets have absorbed the shock with mixed results. Energy producers have benefited from higher commodity prices, while transportation and consumer-discretionary names have faced pressure from rising input costs. Canadian banks have seen modest equity gains on the broader inflation-trade thesis, although their loan-loss expectations have ticked up slightly given pressure on consumer households.

Bond markets have been more cautious. The combination of higher inflation expectations and a Bank of Canada that is no longer ruling out rate hikes has moved Canadian government bond yields modestly higher across the curve. Mortgage rates, which Canadian borrowers care about most directly, have firmed up as a result, although the practical change for new mortgage applicants has been incremental rather than dramatic.

Currency markets have seen the Canadian dollar trade in a wide range against the US dollar, with energy-price gains providing support but broader trade-policy uncertainty pulling in the other direction. The loonie's net move has been modest, although volatility has remained elevated.

Civilian impacts in conflict zones

The civilian toll of the broader Iran war has been substantial. The conflict between Hezbollah and Israel, which escalated into the Lebanon war, killed more than 2,000 civilians and combatants. Iran itself has experienced significant casualties from US and Israeli airstrikes, including senior officials and many civilians.

Canadian aid agencies, including those operating through the Canadian Red Cross and various international NGOs with significant Canadian funding, have been working under difficult conditions. The federal government has committed humanitarian funding to Lebanon, Gaza, and Iran-affected populations, although the operational challenges of delivering aid in active conflict zones remain severe.

The Canadian diaspora communities affected by the conflict have organised significant support and advocacy efforts. Iranian-Canadian, Lebanese-Canadian, and Israeli-Canadian organisations have maintained active community engagement through the conflict, including humanitarian fundraising and political advocacy.

What's next

The most immediate question is whether the Strait of Hormuz can be reopened to commercial traffic. Iran has at various points signalled willingness to discuss the issue, including a recent proposal that did not materially change actual transit conditions. Western governments have made reopening of the Strait a precondition for broader de-escalation, while Iran has tied the issue to its own demands on sanctions and military presence.

For Canadian consumers, the practical near-term outlook depends on how quickly the energy supply picture stabilises. ExxonMobil chief executive Darren Woods has publicly argued that markets have not fully absorbed the supply shock and that prices may go higher. Other analysts have been more sanguine, expecting prices to ease if any meaningful diplomatic progress is achieved.

The longer-term implications include sharper Canadian focus on energy security, infrastructure investment, and diversification of trade relationships. The combination of US tariff pressure, the Iran war, and broader geopolitical fragmentation has accelerated changes in Canadian foreign and economic policy that were already in motion. The next several months will indicate how durable those shifts prove to be.