The conflict in the Middle East continues to disrupt commodity and financial markets and cloud the economic outlook. With a significant amount of oil supply still unable to get through the Strait of Hormuz, the inflation, interest rates, and the growth outlook in both the U.S. and Canada could be affected in the coming weeks.

To unpack what the conflict means for the outlook on oil prices and the economy, Camilla Sutton, MD, Head of Equity Research, Canada & U.K., BMO Capital Markets, hosted a special discussion on March 17, 2026, on the “Middle East Conflict: In Search of Economic and Market Stability,” featuring:

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  Randy Ollenberger, MD, Oil & Gas Research

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  Doug Porter, Managing Director and Chief Economist, BMO

Listen to the Markets Plus podcast based on the discussion:

Here’s a look at some of the key themes to watch:

The current conflict in the Middle East is the biggest shock to oil markets since the 1973 oil embargo, yet according to Randy Ollenberger, the market may still be underestimating how far the disruption will reach. Since the start of the conflict, tanker traffic through the Strait of Hormuz has fallen from roughly 60 daily transits to single digits, effectively halting almost 20% of global oil and product movements, he explained.

Because physical deliveries can move with a lag of several weeks, the full impact of the disruption may not immediately show up in end‑use markets. With departures sharply reduced and many vessels delaying transit, Ollenberger expects pressure to build in the coming weeks as that buffer runs out.

Even a quick resolution, he said, would still leave a three-week gap in tanker loadings, while an ongoing geopolitical risk premium could keep prices elevated well beyond that. For that reason, he said a return to US$60 to US$65 a barrel oil is off the table. “We’re going to be looking at a higher oil price environment coming out of this for the balance of the year,” he said.

The impact of sustained high oil prices is going to have wide-reaching implications on the economy, explained Doug Porter. “Because oil is the most important commodity in the world, the rising cost of crude goes way beyond just the product prices,” he said. “It will have an impact on food inflation as well, unfortunately.”

Every 10% rise in oil prices adds about two-tenths of a percentage point to North American inflation and shaves about a tenth off growth, he explained. Porter now expects headline inflation in both the U.S. and Canada to rise by about half a percentage point, pushing the U.S. closer to 3% this year, although it could go as high as 4% this spring before pulling back. Canada, he added, will be just below that.

On growth, Porter noted that the two economies are starting from different places. U.S. GDP is still expected to grow slightly more than 2% this year, roughly in line with its 20-year average. For Canada, Porter cut growth expectations to 1%, down from 1.5% earlier this year. He noted that weak momentum and ongoing uncertainty around whether the USMCA trade pact would be renewed meant Canada was in a weaker position than when the conflict began. “Even before the conflict broke out, we were looking very soft in the Canadian economy,” he said.

Porter said central banks are actually in a better position to weather the current situation than they were when oil prices spiked after Russia’s invasion of Ukraine. At the time, core inflation was running at about 4% in Canada and 6% in the U.S., whereas this time it is closer to 2% and 3%, respectively.

On the Bank of Canada, Porter said that based on the inflation outlook, GDP growth and rising job losses, there is almost no case for a rate hike this year.

Porter added that while the inflation impact remains manageable for now, he warned that the duration of the conflict matters. “If prices stay at these levels for much longer, it’s going to keep chipping away at growth.”

Because the world consumes gasoline, diesel and jet fuel rather than crude oil itself, the refined product markets offer some clues as to how high oil prices could rise, said Ollenberger. He pointed to 2008 as an example of refined product markets tightening ahead of crude; a dynamic he believes could re‑emerge if disruptions persist.

In some regions, refined product prices have reached US$150 to US$160 a barrel, compared with a normal spread of less than US$10 a barrel over crude. For Ollenberger, that gap between crude and refined products suggests that oil prices have not peaked yet. “Volatility is still the watchword,” he says.

The impact of the crisis has not been reflected in the equity valuations here for energy stocks yet. “We still think there’s some very good value here as the market is underestimating the impact of high oil prices on balance sheets,” he said.