Strait of Hormuz Crisis Pushes Canadian Gas Prices Near $2 a Litre

Canadian gasoline prices have climbed close to $2 per litre across the country as Iran's continued blockade of the Strait of Hormuz keeps roughly 20 per cent of the world's seaborne oil trade off the market. The crisis, which began in late February when the United States and Israel launched air strikes on Iran, has pushed Brent crude prices above $90 a barrel and forced Canadian households to rethink driving habits, holiday plans and household budgets.

For Canada, the shock has produced contradictions. As a major oil producer, the country benefits from higher global prices through royalties, taxes and corporate earnings, particularly in Alberta and Saskatchewan. But Canadian drivers, who buy gasoline at retail pumps tied to global benchmarks, have seen prices rise sharply, contributing to the highest year-over-year inflation print Canada has registered in many months.

The crisis in brief

The Strait of Hormuz is the narrow waterway between Iran and Oman through which a substantial share of global oil exports flow. Tankers carrying crude from Saudi Arabia, the United Arab Emirates, Iraq, Kuwait and Iran itself transit the strait, making it one of the most strategically important shipping lanes in the world. Iran's blockade, which began on February 28, has been described by the International Energy Agency as one of the largest supply disruptions in the history of the global oil market.

Brent crude prices, which traded below US$70 a barrel earlier in the year, have climbed to roughly US$95 a barrel in recent weeks. Some analysts at major Wall Street banks have warned that prices could continue to rise if the closure persists or escalates. Citigroup has forecast that prices may stay near US$110 a barrel over the next month, although other analysts have offered more conservative views as alternative supply routes and inventories absorb part of the shock.

Iran has signalled, through Pakistani intermediaries, that it would consider reopening the strait in exchange for an end to the U.S. blockade and a pause in nuclear negotiations. Bilateral talks held in Islamabad earlier in the month did not produce an agreement, although both sides have expressed openness to continued discussions. The exact path to resolution remains unclear, and oil markets continue to price in the risk that the disruption will last for weeks or months.

Pump prices in Canada

Canadian retail gasoline prices have responded sharply to the crude oil price spike. The national average price of regular gasoline hit roughly 198 cents per litre in April, with prices in some markets above $2 per litre. Diesel prices have followed a similar trajectory. Statistics Canada reported a 21.2 per cent monthly increase in gasoline prices in March, the largest single-month change in the agency's records.

Provincial differences in pricing remain significant. British Columbia, which combines high transit costs with a regional carbon levy, typically sees the highest pump prices in the country. Atlantic provinces also experience higher-than-average prices given limited refining capacity. Alberta, with its proximity to refining and production assets, generally sees lower retail prices, although the province has not been immune to the broader global increase.

The Carney government has responded to the price shock with a temporary suspension of the federal fuel excise tax on gasoline and diesel, announced earlier in April. Conservative Leader Pierre Poilievre has called for a broader rollback of all fuel taxes, including the carbon levy and the GST. The political debate over fuel taxation is unlikely to subside while pump prices remain elevated.

The household impact

For Canadian households, the gasoline price increase has translated into higher transportation costs that compound other living-cost pressures. Households in suburban and rural communities, where commuting distances are longer and public transit options are limited, have been hit hardest. The shift to higher gas prices has prompted some families to reduce discretionary driving, delay holiday plans and adjust monthly budgets.

The impact extends beyond direct fuel purchases. Higher diesel prices push up shipping and trucking costs, which feed through to grocery prices and other goods. Statistics Canada's inflation figures have shown that headline inflation reached 2.4 per cent in March, with energy costs accounting for much of the increase. Core inflation, which strips out volatile components such as energy and food, has remained more stable.

Public transit usage has reportedly increased in some Canadian cities as drivers seek to reduce fuel costs. Ride-sharing services have adjusted pricing in response to the higher gasoline prices, and demand for fuel-efficient and electric vehicles has firmed up in the broader auto market. Some provinces have explored additional supports for low-income households facing transportation cost pressures.

Producer benefits and trade-offs

For Canadian oil producers, the higher prices have provided meaningful financial benefits. Western Canadian Select, the benchmark for Canadian heavy crude, has tracked higher with global benchmarks, although the differential between WCS and Brent has remained substantial. Producers in Alberta, Saskatchewan and offshore Newfoundland have benefited from the price environment, with corporate earnings and royalty payments climbing.

Provincial governments in oil-producing regions have seen revenue boosts. Alberta has indicated that its budget surplus could grow, although Premier Danielle Smith has cautioned about over-reliance on volatile resource revenues. Saskatchewan has been similarly attentive to the upside, while also acknowledging that resource booms tend to be followed by busts.

The federal government's revenue picture is also shaped by oil prices. Higher corporate earnings translate into higher federal tax collections, providing some offset to the consumer-side pain. The interplay between household pressure and producer benefits has been a recurring theme in federal-provincial discussions, with western provinces emphasising the broader benefits of strong oil markets and central Canada focusing on consumer impacts.

The diplomatic dimension

Canadian foreign policy has been navigating the Iran crisis carefully. Foreign Minister Mélanie Joly has emphasised diplomatic resolution and has supported allied efforts to bring the conflict to an end. Canada is not a direct combatant in the U.S.-Israel-Iran conflict, but the country's energy markets, defence ties with the United States and broader interest in a stable global trading system make the resolution of the crisis a priority.

Canada has not deployed military assets to the region in the current conflict, although Canadian Armed Forces personnel are stationed in various Middle Eastern locations as part of long-running coalition operations. The federal government has been monitoring the safety of Canadians in the region and has adjusted travel advisories and consular services accordingly.

The European Union and several other allies have similarly emphasised diplomatic channels, with the European Commission and individual European governments engaging with both Tehran and Washington. The Canadian approach has been broadly aligned with that of European partners, although the country has limited direct influence over the immediate negotiations between the United States, Israel and Iran.

Bank of Canada implications

The oil price shock has put the Bank of Canada in a complicated position. The central bank's mandate is price stability, with a 2 per cent inflation target. The energy-driven rise in inflation has been clearly visible in headline numbers, but the bank has emphasised that the underlying inflation pressures remain more contained. Macklem and his colleagues are expected to leave the policy rate at 2.25 per cent at the next decision on April 29.

The bank's reasoning is that energy price shocks driven by external supply disruptions are typically temporary, and that monetary policy is poorly suited to address them. Hiking rates in response to higher gasoline prices would tighten financial conditions for households and businesses without addressing the underlying supply constraint. Cutting rates, on the other hand, could allow inflation pressures to broaden if the price shock turns out to be more sustained than expected.

The combination of energy-driven inflation and tariff-driven growth concerns has produced a difficult policy mix. The bank's Monetary Policy Report on April 29 is expected to provide updated projections that reflect both forces. Markets currently expect the bank to remain on hold, with rate decisions later in the year shaped by how the trade dispute and energy crisis evolve.

Energy security policy

The crisis has reignited the longer-running debate over Canadian energy infrastructure and security. Proponents of expanded pipeline and export capacity argue that Canada should be playing a larger role in supplying global energy markets, particularly to allies seeking to reduce dependence on volatile sources. Opponents emphasise the climate and environmental risks of expanded fossil fuel infrastructure.

Liquefied natural gas exports from the West Coast, which have been increasing, are a focal point of the discussion. The federal government has approved several LNG projects, with shipments scheduled to ramp up in the coming years. Whether further expansion is warranted, given the climate context, remains a contested policy question.

The federal government's broader energy strategy continues to emphasise the transition to lower-emission energy sources, including support for nuclear, hydroelectric and renewable power. The Strait of Hormuz crisis has, in some ways, reinforced the long-term case for energy diversification, even as it has produced short-term political pressure to maximise oil production and exports.

What it means for Canadians

For households, the practical implications are clear. Pump prices remain elevated, transportation costs are higher and overall consumer prices reflect the spillover effects of the energy shock. Budget planning, holiday travel decisions and longer-term vehicle purchases are all being affected. Some families are exploring carpooling, transit alternatives and trip consolidation to manage costs.

For businesses, particularly those with logistics-heavy operations, fuel costs have become a significant line item. Trucking, shipping, agriculture and tourism are among the sectors most exposed. Some businesses have passed costs through to customers, while others have absorbed the impact in margins. Smaller firms with limited pricing power are particularly vulnerable.

For workers in the oil and gas sector, the price environment has supported employment and investment. Drilling activity in Western Canada has increased, and oilfield service providers have been hiring. The benefits have been concentrated in specific regions, while the costs have been spread across the country.

What's next

The crisis will continue to evolve depending on the trajectory of the U.S.-Iran negotiations and the broader regional security environment. Iran's most recent proposal, delivered through Pakistani intermediaries on April 27, would reopen the strait in exchange for an end to the U.S. blockade and would postpone formal nuclear negotiations to a later stage. The U.S. response will shape the path forward.

Canadian households should expect pump prices to remain elevated until there is a clear de-escalation. The federal government's fuel excise tax suspension provides some relief, but it does not offset the full magnitude of the increase. Provincial governments may consider additional supports, although fiscal capacity varies across regions.

For Canadian foreign policy, the crisis is a reminder that energy markets, defence ties and diplomatic relations are increasingly interconnected. The country's interest in a stable global trading system, energy security and broader allied cooperation will continue to shape its responses to the crisis as it unfolds. The path to resolution remains uncertain, but the implications for Canadian households, businesses and policymakers are deeply familiar.