The war in the Middle East, precipitated by an attack on Iran by the United States and Israel, has reopened debate in Canada about oil exports, global strategic petroleum reserves and what it could all mean for our country’s energy sector.

Human cost should always be the first consideration in times of war, but how this conflict will affect oil supplies cannot be ignored. Some see it as an opportunity to expand Canada’s industry, but they have mistaken a temporary price shock for a durable market signal. In fact, the war highlights the Canadian oil sector’s exposure to global risk and the dangers of staking our economic future on that industry’s long-term outlook.

Major Canadian energy and climate policy questions are at issue right now in ongoing negotiations between Canada, Alberta and oilsands producers. Some are attempting to use recent conflicts in Ukraine, Venezuela and the Middle East to advance their goals in these talks.

This conflict has, predictably, caused a spike in oil prices to well over US$100 a barrel. The effective closure of the Strait of Hormuz has restricted near-term supply and driven up consumer prices. Four years ago, we also saw prices rise when Russia, a major oil and gas producer, invaded Ukraine.   

War-related price increases provide a windfall for producers, including Canadian firms, and for governments such as Alberta that collect royalties. These spikes tend to be short-lived, because prices settle down as the market develops a workaround. Options can include increased production from other suppliers, rerouted shipping, governments dipping into oil reserves or, in Russia’s case, evasion of sanctions.

Price spikes are temporary, volatility is permanent

Price shocks can work the other way too. In 2014, a price crash caused by a confluence of........

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