As tensions flare once again in the Middle East, oil prices have responded with their usual sensitivity—spiking, retreating, and keeping markets on edge. But according to Nathan Janzen, Assistant Chief Economist at RBC Economics, the implications for Canada may be more muted than headlines suggest. In his latest research note, “Crude calculations: Assessing Canada’s vulnerability to oil price fluctuations,” Janzen breaks down why the current geopolitical tremors might not shake Canada’s economic foundations the way they once did.
A Modest Reaction—For Now
“Conflict in the Middle East has made oil prices fluctuate wildly in recent days,” Janzen writes, acknowledging the whiplash-inducing movement in crude benchmarks. But importantly, he adds: “The net increase in global benchmark prices has been relatively contained.” Even during peak price surges following early conflict-related headlines, oil remained below the highs seen earlier this year. As of June 24, Janzen notes, prices “are back to levels little changed from two weeks ago.”
This measured response, he argues, reflects a key nuance: the type of oil price shock matters just as much as the magnitude.
Not All Oil Shocks Are Created Equal
Canada, a major oil exporter, has long been thought to benefit from rising crude prices. But that relationship isn’t so straightforward anymore.
Janzen cautions that “the economic impact of changes in oil prices depends on what’s driving them.” When oil prices rise due to temporary geopolitical flare-ups—as is the case now—they’re often seen as transitory. That’s unlikely to influence long-term business investment decisions or alter energy production plans in any meaningful way.
That’s a stark contrast to what happened a decade ago when “structural shifts in global oil supply and demand… led to a collapse in investment in the Canadian oil and gas sector.” In that instance, the shift was durable—and devastating—reshaping Alberta’s economy and rippling through national GDP figures.
In short: volatility triggered by politics doesn’t cut as deep as volatility caused by market fundamentals.
New Risks in a Changed Economy
Still, Janzen stops short of suggesting Canada is in the clear.
“Further escalation could push prices higher and create more uncertainty for Canada’s already complex economic picture,” he warns. Inflation pressures, consumer sentiment, and fiscal balances could all be impacted if oil remains on an upward trajectory for long.
Moreover, Canada’s economy has changed over the last decade. While oil still matters, the country’s reliance on resource-driven growth has faded somewhat. Services now represent a larger share of GDP. The Bank of Canada, too, is navigating a more intricate landscape—balancing rate cuts with persistent price pressures and softening consumer demand.
What to Watch Next
Janzen’s message is less about alarm and more about calibration. “The risks may have changed from the past,” he explains, urging policymakers and market watchers not to rely too heavily on old playbooks.
That means watching not just oil prices—but why they’re moving. Are disruptions temporary, or is global energy demand entering a new paradigm? Is the investment community treating price bumps as noise—or signals?
For now, Janzen’s take offers both realism and restraint: the oil market may be twitchy, but Canada’s exposure is not what it once was. The real danger isn’t the volatility itself—it’s overreacting to it.
Key Takeaways from Janzen’s Note:
- Oil prices surged on Middle East conflict, but the “net increase” has been “relatively contained.”
- Geopolitical shocks are “unlikely to be viewed as persistent enough” to shift investment decisions.
- Structural changes in global supply and demand—not short-term volatility—have historically had the deepest economic impact.
- “Further escalation could… create more uncertainty,” but Canada’s economic vulnerability has evolved.
- Policy response should be cautious, focusing on why prices are moving—not just how far.
Canada may still be tethered to oil—but it no longer dances to its every move.
