The Iran War and Canada's Economy: What to Expect

As I write this, it has been about a month since the war between the US, Israel, and Iran began. Beyond what it means for Iranians, that conflict reaches every country, Canada included. I am Moe Asgarian, a Principal Real Estate Broker in Toronto, and I want to walk through how this war touches Canada's economy.

Why the Strait of Hormuz matters to Canada

If the fighting drags on, Canadians should brace for a long stretch of high inflation. Conflict in Iran disrupts the global flow of oil through the Strait of Hormuz, and roughly one-fifth of the world's oil and liquefied natural gas passes through it. Oil is getting more expensive, but the pressure runs well past the price at the pump. The war also touched interest rates. The central bank had been leaning toward a cut, and the conflict pushed it to hold instead, so a chance to help the economy slipped away. That is why I keep saying the effect on Canada is bigger than oil and gas prices alone. The single most important thing to understand here is uncertainty. Even the Bank of Canada does not know what comes next.

Inflation beyond the gas pump

The financial squeeze does not show up only at gas stations. Airlines have already started raising ticket prices as fuel costs climb, so travel is pricier. More worrying is the supply chain. There are alarming reports of a crisis in chemical fertilizer, and when fertilizer gets scarce it gets expensive, and that runs through everything like a line of dominoes. Whenever raw material costs rise for businesses, the consumer at the end of the chain pays. Higher fuel raises production costs for farmers and ranchers, and it costs more to truck food to market. A 50% jump in oil prices alone can add around $75 a year to a typical family's food bill, and closer to $100 once you factor in restaurants. If oil and fertilizer both climb 50%, each Canadian household could pay at least about $100 more a year.

Even the end of the war will not reset prices

Here is the hard part. Even if the war ends quickly, do not expect prices to fall right back. We still do not know how much of Iran's oil infrastructure is damaged, or how long it takes for its previous production capacity to return, and Iran's condition after the war will shape the oil and energy market for a long time. Picture manufacturers who bought raw materials at high prices. Even after a ceasefire, those costs do not drop overnight. The worst case is the Strait of Hormuz staying closed for a long time. Oil is already trading above $100 a barrel as I write this, and a prolonged closure could push it past $200, or keep it parked well above $75 to $100 for a long stretch.

Interest rates and the 2026 mortgage renewal wave

High oil prices make it harder for the central bank to control inflation, and they weigh on growth at the same time, since households have to juggle transport, heating, and food, which pulls down spending. Remember what we have said before: 2026 is the year a huge number of mortgages across Canada come up for renewal. With oil up and inflation likely rising, the Bank of Canada may push rates higher, which means higher mortgage rates. Families renewing this year face those higher rates on top of everything else the war is adding. Our earlier call that fixed rates would climb has already played out. Every bank has started raising its fixed rates, and if this drags on, fixed goes higher still.

The oil windfall, and global signals

Higher oil is not all downside for Canada. For Alberta it cuts both ways: higher prices lift government royalty revenue and help shrink the deficit. Economic shocks hurt some and help others. Canada produces roughly 1.9 billion barrels of oil a year, so if the price rises about $30 a barrel, that is around $60 billion in extra revenue, a net benefit for the economy overall. The real question is how much of that reaches the everyday economy. Meanwhile, the US is bracing for what it hopes is transitory inflation, with economists there worried it could tip into recession. Early data from the euro area is sounding a stagflation alarm too, with input prices rising at their fastest pace since February 2023 as energy costs bite. Inflation depends heavily on the global picture, and Canada should take these signals seriously.

What I am watching next

Until the fog from the Iran war and the trade war clears, I expect the Bank of Canada to stay cautious about economic risks and hold its course, though something sudden in the middle of a war could upend every forecast. And even if the Iran war ends, Canada still faces a tariff war. Personally, I hope we move through these days fast. I wish health and freedom for Iran and for every Iranian, and I hope we soon see calm return to both the Iranian and Canadian economies. If you want to talk through what this means for your own plans to buy or sell, my team and I are here. Fill out the form at the bottom of this page or book a free consultation. Stay well and take care.