Brent and WTI crude have both broken above 100 dollars a barrel as renewed fighting between US and Iranian forces intensifies fears over Middle East oil supply. Flows through the Strait of Hormuz, the corridor that carries roughly a fifth of global oil trade, have collapsed to under 2 million barrels a day from 8 to 9 million before fighting resumed on September 2, according to tanker tracker Kpler. Not a single very large crude carrier has exited the strait since that date.
What an Oil Shock Actually Does to a Canadian Portfolio
The mechanism runs through three channels that can be named specifically. Canadian energy producers with unhedged production capture the higher price directly, and the TSX energy sub-index has outperformed the broader composite through the move even as the TSX itself has fallen on rate concerns elsewhere. Second, a sustained supply shock raises input costs across the economy, adding to the same inflation picture the Bank of Canada is already watching. Third, elevated oil typically supports the Canadian dollar, a relationship that has not held this month because the Federal Reserve rate increase is pulling capital toward the US dollar at the same time.
WTI crude has climbed roughly 20 percent since mid-August, with nearly all of the move concentrated in the two weeks since fighting between US and Iranian forces resumed and tanker traffic through the Strait of Hormuz began to collapse.
WTI has risen from about 85 dollars in mid-August to above 100 dollars after fighting between US and Iranian forces resumed on September 2, collapsing tanker traffic through the Strait of Hormuz. Flows through the strait have fallen from roughly 8 to 9 million barrels a day to under 2 million, per Kpler.
Tail Risk, Not Base Case, for Now
The scenario worth naming explicitly is a full closure of the strait rather than the current disruption, which would remove a volume of oil the global market has never had to absorb at once. That remains a tail risk rather than the base case: even at current flow levels, oil is moving through the strait, just at a fraction of its usual volume, and the International Energy Agency reports global inventories have already been drawn down by 69 million barrels in July to cushion the impact. A full closure would be a materially different event from the current disruption, and nothing in the current flow data points to one.
The working assumption is that flows stay depressed and volatile without fully stopping, which keeps oil elevated without producing the kind of shock that would force a sudden Bank of Canada response. A strait closure remains the scenario to monitor, not the one the current price already reflects.