Sticker shock. That’s how many people are describing their experience at the gas pumps following the war in Iran.

According to GasBuddy.com, regular gasoline prices averaged over 167 cents per litre in Alberta yesterday—up from pre-war levels of about 125 cents. There’s nowhere to hide in Canada, with gas prices up everywhere (at the national level, gas prices were averaging around 183 cents per litre yesterday).

Oil price forecasts are in flux given the ever-changing situation in the Middle East. Yesterday, the U.S. Energy Information Administration updated its monthly forecast, now expecting WTI to average US$87.41/bbl in 2026 and US$72.43/bbl in 2027. But that was before news of the two-week ceasefire, which lowered prices from over US$110/bbl to the mid-90s this morning. Even if the Strait of Hormuz opens permanently, it will take time for oil prices to move lower and we should expect a larger geopolitical risk premium to be embedded in prices. 

Higher fuel prices are the most visible economic impact of the war so far. But the impacts are much broader than that. Food, for example, is effectively energy transformed—and not just via photosynthesis. Modern nitrogen fertilizers, which are by-products of natural gas, have shot up in price. Diesel, one of the largest input variables for food production and transportation, has jumped by an even heftier amount than its gasoline counterpart.

Sorting out the implications of this for household budgets is an empirical exercise. University of Calgary economist Trevor Tombe crunched the numbers using detailed input-output accounts from Statistics Canada that trace the flow of goods and services in the economy.

Tombe finds that a 50% increase in oil and fertilizer prices raises the typical energy bill for Canadians by more than $500 (if sustained for a year). The indirect effects are significant, with food, dining and alcohol costs up $175. Even clothing and personal care products go up $26. Tombe reckons these increases add 1.2 points to the Canadian inflation rate.

If anything, Tombe’s inflation math may understate things. One of the indirect casualties of higher energy-price-induced inflation is borrowing costs. Even though we see the Bank of Canada on hold this year, longer-term rates have already shifted higher. Five-year bond yields, the benchmark for the five-year mortgage rate, have risen by over 40 basis points (or 0.4 percentage points to 3.1%) since the start of the war. This should add some modest upward pressure to mortgage interest costs—a component of the CPI that has been trending lower.  

That said, Tombe’s numbers roughly check out with our macro math. Our March forecast assumed oil prices stayed elevated for three months before easing. We landed on a US$75/bbl average WTI price for 2026 (similar to the U.S. Energy Information Administration’s March forecast), which added about 0.5 points to our previous CPI forecast. But if the conflict drags on, the average annual WTI price could come in higher. To give a sense of how sensitive our inflation forecast is to the WTI price, the following figure provides some rough estimates.  

Of course, the economic implications are different in Alberta than elsewhere in the country. The province is by far the largest oil producer in Canada, and a massive net exporter. That means higher oil prices translate into gains in the value of Alberta’s output, or nominal GDP, mainly in the form of corporate income and government revenue (royalties and taxes).

Nominal GDP is forecast to rise by 6.0% (up from 0.7% in our December forecast) under the US$75/bbl scenario for WTI, but the gain could be 12.4% if WTI averaged US$95/bbl.

How this impacts real GDP (the volume of economic activity) and jobs is a trickier problem to solve. Much of it depends on how much of the additional oil revenue would be translated into new spending in the economy. We see oil producers remaining cautious regarding their capital spending due to uncertainty over the duration of the price spike and pipeline constraints. As a result, we are not forecasting an energy or employment boom, but we still expect real GDP growth to rise to 2.7% in 2026, up from our December forecast of 2.1%.  

Answer to the previous trivia question: At just $16 million last year, Rhode Island is the U.S. state that imports the least from Alberta.

Today’s trivia question: What is the Moon's average distance from the Earth?