May 13, 2026 | Quiet Counsel | 9 min read

The Hormuz Legacy: Gremlin or Civic?

In the 1970s, the world was struck by a series of economic shocks. Years of loose monetary and fiscal policy fueled a wage-price spiral, while energy prices surged first with OPEC’s 1973-1974 oil embargo and again with the 1979 Iranian Revolution. Automakers responded by elevating the fuel-efficient compact car, as Japan’s nascent auto empire (think: Toyota Corolla, Honda Civic, and Datsun 510) went head-to-head with the Americans’ AMC Gremlin, Ford Pinto, and Chevrolet Chevette. In hindsight, it was not a fair fight.

Eventually, US Federal Reserve Chair Paul Volcker famously neutered the crisis in the early 1980s by raising interest rates above 20% to bring inflation under control. Riding in their American cousin’s sidecar as usual, Canada matched the hikes. While it marked the beginning of 40+ years of nearly unfettered growth, it was a dark time.

As the war in Iran enters its third month, markets and economies around the world are beginning to grapple with the broader impact of the resulting oil shock. As history has shown, a spike in energy costs can affect more than the price at the pump. How bad is it? Should investors be worried? And what opportunities may arise? We put these questions to Nick Szucs, who in addition to covering energy stocks for our Canadian equity strategies, leads the team.  
 

Before we talk about the broader implications, how has this oil spike affected Canadian producers differently than past ones? 

Canadian producers are clearly beneficiaries of this environment as Western Canadian energy assets are amongst the most attractive ones in the world right now. They are not reliant on Strait of Hormuz (SOH) tanker routes, many have long-life, low-decline production profiles, and they're in a politically stable jurisdiction. Our holdings in Canadian Natural Resources, Tourmaline Oil, Methanex, Pembina Pipeline, Topaz Energy, and Keyera are six key examples. These companies are generating significant free cash flow in this environment.

Share price performances for these companies have been predictably strong but are not up as much as oil prices, for two main reasons.

The first is currency. When oil prices spike, the Canadian dollar often strengthens against the US dollar because Canada is a major commodity exporter and global investors tend to treat the loonie as a commodity currency. That can offset part of the benefit for Canadian producers when US-dollar oil revenues are translated back into Canadian dollars. We saw a similar dynamic play out during both the 2008 and 2022 energy cycles.

Historically, Canada’s heavy oil has traded at a significant discount to American light sweet crude, reflecting the quality difference and transportation costs to US refineries. That discount shrunk over the past year, though. Why? Because Canadian producers have been able to ship more supply through Pacific ports after the Trans Mountain pipeline expansion came online. So the good news is Canadian producers have actually been better positioned than in past cycles, though with that said, if Asian refineries should curtail operations, it will impact demand for Canadian crude.

The bottom line for Canadian producers is that the medium and long-term picture looks quite optimistic, but the near term is complicated by macro uncertainty, currency dynamics, and the question of how long the disruption persists.
 

How are you thinking about potential impact of energy prices on broader inflation, rates, economic growth, and markets? 

The energy shock from the Iran war is fundamentally different from a typical commodity price spike because it's supply-driven and structural, rather than demand-driven and cyclical.

When oil goes up because the global economy is booming, central banks can look through it; because demand is pulling the price up, bankers anticipate that supply will eventually respond and it will self-correct.

The situation today is different because supply has been physically removed from the market. I like to think of the Strait of Hormuz as the world’s biggest oil pipeline. Roughly 13-15 million barrels a day (or about 15% of global supply) has been taken offline by the SOH closure and associated infrastructure damage. There is no supply relief valve to moderate prices, and interest rate policy can’t help.

What we're watching most closely are the secondary pass-through effects. Higher energy prices will impact raw material costs for things like cement, steel, transportation, and freight as well as a variety of consumer products. These will be hurt further by a stronger Canadian dollar, which could make exports less attractive.

With that said, since we're far more energy-efficient than in 1973 or even 2008, oil prices are in fact a relatively small direct input into most Western economies today. One acute risk we anticipate, though, is in the cost of food. 

Natural gas is the primary feedstock for ammonia fertilizer. If gas prices stay elevated for long enough — and commodity trading houses Vitol and Mercuria both said at a recent conference that demand destruction is "massive" and the worst is yet to come — you start to see fertilizer plant curtailments, which eventually flows through to food production costs. That's the scenario that concerns central banks, because food inflation hits lower-income households hardest and is politically intolerable.

The base case for markets is that the conflict resolves within a few months and that the West Texas Intermediate oil price stabilizes between ~$70-$80. This range is also what most of the major commodity houses are calling a permanent new floor regardless of how the conflict resolves. Under that scenario, we see the inflation impact as meaningful but manageable. See Figure 1 to see how the current shock (and a $75 go-forward floor) compares to pricing over the last ten years. 

Figure 1: WTI oil prices, 10 years to May 2026

Source: Bloomberg.

The remote-but-potentially-big-impact risk is a protracted closure of the Strait, with associated higher energy prices tipping the economy into recession. As Figure 2 shows, recessions are common when oil price spikes persist and several market sources are currently calling for a global recession if the SOH doesn’t reopen within three months. As of time of writing, we're currently at about 10 weeks. That's the clock investors need to be watching.

Figure 2: The impact of higher oil prices on economic growth, 1970 – 2026

Source: National Bank Financial, National Bank of Canada.

Disruptions in the Strait of Hormuz and damage to regional energy infrastructure drove energy prices sharply higher. While the magnitude and duration of these impacts remain uncertain, the situation weighed on markets, creating volatility across equities.

Besides the obvious winners who are selling oil at higher prices now, what secondary effects are you watching for – within energy broadly, within industries dependent on energy, and do you think markets are discounting them enough?

Within energy, the most interesting secondary effects are happening in the liquified natural gas (LNG) and natural gas markets, and specifically in petrochemicals. LNG prices have more than doubled through this crisis, and it’s not just a lock-step repricing to reflect higher oil prices.

Given multi-year lead times for turbines and major components, missile damage to Qatar's LNG infrastructure will be a 3-5 year project, meaning what looked like a temporary disruption is increasingly looking structural for the LNG market through the end of the decade.

In petrochemicals, about 5% of global ethylene capacity is already offline across Japan, South Korea, and China because those plants run on Middle Eastern energy feedstocks. This affects everything from plastic bottles to electronic components.

We're watching methanol prices particularly closely, given our holding in Methanex. Iran is the world's second-largest methanol producer, and the Assaluyeh complex, which represents about 75% of Iran's methanol capacity, was hit in the April strikes. In addition, the adjacent South Pars gas field – the country’s most important and its primary input to methanol production – sustained damage during a separate military strike in March. 

Methanol is used to produce olefins as a petrochemical feedstock substitute in Asia, and the supply disruption is creating extraordinary pricing. Methanex was up over 52% in the first quarter as a result, making it one of the biggest contributors to our Canadian portfolio.

Beyond energy, I'd highlight aviation and agriculture as the two most vulnerable sectors. Aviation fuel costs have surged and several airlines are already canceling routes or preparing contingency grounding plans. That demand destruction in air travel has real implications for aircraft orders, airports, and travel-adjacent businesses. In agriculture, rice fields in Southeast Asia are already sitting idle because diesel and fertilizer costs make harvesting uneconomic. That's a food security story that will show up in grocery prices within a few months.

In terms of market discounting, I think the physical reality is significantly more severe than financial market prices suggest. Brent oil is trading around $100/barrel right now, down from $120 in March, largely because Iran attended a round of peace talks. But commodity trading company Trafigura's chief economist put it well recently: "Demand destruction is happening in places that are not visible pricing centers." The pain is real in Bangladesh, Vietnam, and the Philippines — it just doesn't show up in credit spreads or the market volatility indicator, VIX. I think energy equities are still meaningfully underpriced relative to where the physical market is. But the risk is that a prolonged closure of the SOH ultimately leads to a global slowdown/recession. In that situation, it doesn’t just hurt oil, it hurts the consumer, the correlation between energy equities and the broader equity market goes to 1, and everything falls together.
 

Behind every cloud there is a silver lining. Where are we finding opportunity amongst the noise?

Despite the turbulence and uncertainty, we see meaningful reasons for optimism. The same disruption that has unsettled global markets has accelerated a fundamental reshuffling of the world’s energy supply chain – one that increasingly favours Western Canada. This spring, Shell acquired ARC Resources for $22 billion, explicitly citing Canada as a “low-cost heartland” and signaling what we believe will be the first of many such deals. As we write this, LNG Canada is moving toward a second phase expansion, and other Pacific export projects are gaining momentum. Canada’s natural gas and oil assets, which are long-lived, low-cost, politically stable, and geographically insulated from Middle Eastern conflict, are exactly what the world’s largest energy companies are paying premium prices to own. We have been positioned here deliberately, far before the crisis, through the holdings mentioned above: Tourmaline Oil, Canadian Natural Resources, Pembina Pipeline, Keyera, Topaz Energy, and Methanex. Each of these companies has direct leverage to the themes reshaping global energy markets. The crisis has simply made the thesis more visible to others, and we believe the best of that story is still to come. 
 

Closing

In closing, Nick reminds us that these types of disruptions actually create the most fertile ground for active investors. While “owning the market” has been a winning strategy in recent years, as passive investors rode the momentum of Big Tech in the US and gold in Canada, passive strategies will likely struggle to match active returns in the aftermath of this crisis. Having a view on value – which sectors or companies have the potential to generate real shareholder value but have had their prices washed out with general market sentiment – can be immensely valuable when others are panicking. This crisis will pass and when it does, hopefully we can look back on it as more Civic than Gremlin.