Oil prices remained above $100 a barrel Friday as the conflict in the Middle East intensified, roiling global financial markets and sparking fears of a broader economic slowdown. Stock indexes fell sharply as investors assessed the potential for escalating regional instability and its impact on energy supplies.
Crude oil futures traded on the New York Mercantile Exchange closed above the $100 threshold, continuing a trend established since the conflict began in late February 2026. The New York Mercantile Exchange is the world’s largest physical commodity futures exchange.
The economic consequences are already being felt. Airfares are rising, and gasoline prices nationally have increased by approximately 25 percent in the past two weeks. Analysts predict that food inflation will follow, potentially impacting mortgage rates as well.
Despite the escalating tensions, stock market reactions have been relatively muted. U.S. Stocks are down by just 4 percent since the conflict erupted, while Canadian stocks have lost 5 percent. Experts caution against complacency, describing the current market calm as disproportionate to the unfolding economic upheaval.
“If you’re running full risk right now, on any market, in any direction, you’re certifiably insane,” said Adam Butler, chief investment officer at ReSolve Asset Management in Toronto. “It’s an unfathomably complex situation and You’ll see so many different ways things can cascade out of control.”
The Strait of Hormuz, a critical waterway for global energy supplies, has develop into a focal point of concern. Approximately one-fifth of the world’s oil and natural gas, and one-third of the world’s fertilizer, transits through the strait.
A disruption to oil supplies poses a dual threat – simultaneously fueling inflation and hindering economic growth. Rising bond yields, driven by inflation risk, could further impact mortgage rates, affecting the approximately one million Canadians facing renewal this year. The Canadian economy is already showing signs of weakness, with a shrinking GDP in the fourth quarter and a deteriorating job market, leading economists to discuss the possibility of stagflation.
Beyond energy, the Strait of Hormuz is likewise vital for the transport of fertilizer ingredients, potentially leading to higher food costs at a time when many Canadians are already struggling with grocery bills.
Market strategists note that historically, conflicts have not had lasting impacts on stock prices. An analysis of 20 major episodes since World War II by RBC Wealth Management found that the S&P 500 index fell by an average of just 6 percent. However, the analysis also highlighted that major oil market disruptions, such as the Arab oil embargo in 1973 and the Iraqi invasion of Kuwait in 1990, were significant outliers.
Some analysts suggest that the U.S. Administration’s potential intervention to stabilize financial markets may be contributing to the relative calm. Past instances of market volatility have prompted policy shifts, as seen with the Liberation Day tariff fiasco last April.
However, the current Middle East conflict appears to be more intractable than previous incidents, making a swift return to financial stability less likely. Investors are advised to consider diversifying into commodities, defensive stocks like consumer staples and utilities, and potentially managed futures, which can perform well in periods of market volatility. Maintaining a higher cash position is also recommended.
As of Friday, analysts will be closely monitoring the situation in the Middle East and its continued impact on global energy markets and financial assets in the coming days and weeks.
