Oil shock from the war will hurt Canadians for months. Here's how
Canadian travellers will continue to face travel challenges such as increased fares and cancelled overseas flights as the world copes with the disruptions caused by Iran’s blockade of oil shipments through the Strait of Hormuz.
Even if the war comes to a close with a negotiated settlement this weekend , the experts say the oil shortage shock will reverberate for months while supply chains restart and destroyed oil infrastructure is repaired.
For Canada, however, the challenge won’t be supply. Foremost, it will be price. “A return trip between Montreal and Toronto has jumped from $700 to $1,000. A 45-minute flight,” John Gradek, an aviation industry specialist and lecturer at McGill University in Montreal told National Post on Friday.
Dan McTeague, a gas prices analyst and president of Canadians for Affordable Energy , told the Post on Friday that he has “never seen a month like this. Not in my time, compared to any other energy crisis we’ve seen in the past.”
The increase in “pricing is reflecting the massive shortfall that we have in jet fuel,” he says. He’s hoping “there will be some kind of resolution this weekend, but I think we’re a little beyond the point of no return.”
Here in Canada, says Gradek, we refine about 85 per cent of the oil we use. “We have seven refineries. Only about 15 per cent of our oil comes through the east coast from the U.S., as well as Rotterdam and Trinidad.”
However, with twenty per cent of the world’s fuel stuck behind the Strait of Hormuz, he says, the worldwide fuel shortage is already driving up prices, as high as $200 a barrel. That will drive up costs.
But it will soon be more about availability, than ability to pay.
As fuel shortages hit airports in Europe and Asia, he says Canadian airlines will struggle to refuel and return. He predicts increasing flight cancellations.
Canadian airlines, especially international carriers such as Air Canada, WestJet and Air Transit will soon have to contend with shortages in European and Asian airports, Gradek says.
“The availability of fuel in Europe is going to be a big issue,” he says, specifically for return flights. “It’s not what you can pay. You’re not going to be able to buy,” says Gradek.
He points to one example in northern Italy, BP Italia . “The company has already declared a fuel shortage. It has told airlines that for flights operating under three hours from Milan, there won’t be enough fuel. Those flights will be cancelled.”
He predicts the airports in London, Heathrow and Gatwick, will be next. Last month, the Financial Times reported that President Donald Trump telling the U.K and European allies who haven’t been supportive of the U.S. war on Iran to “go get (their) own oil” and buy more jet fuel from the U.S.
Asia may be worse off, according to Gradek. “They are days away from running out of imported fuel. Viet Nam Airways has parked 20 per cent of its fleet. The country is rationing fuel.”
The crisis in Asia derives from countries in that continent getting all their jet fuel from the Middle East. But, says Gradek, “the last tanker from the Strait of Hormuz (bound for Asia) left on Feb. 26. It’s a seven-week journey and will arrive in early April. When it runs out, that will be it.”
Jet fuel is produced in the in the Middle East, says McTeague. He points to Qatar, which “has the single largest facility in the world, and it’s been offline now, five weeks. It’s a declared force majure after drone strikes affected its production. So, this is kind of a long wave. We won’t just be talking higher prices. Around the world, the real issue is a supply shock. Supply shocks aren’t like demand shocks, you know. Demand came back after COVID. Everything was fine.”
With tankers taking several weeks to reach their destinations and oil infrastructure destroyed by the war, says McTeague, “’normal’ cannot be rectified for several months, and it’s in that context that I’m not surprised to see jet fuel being rationed. We know in other countries around the world, other petroleum products are being rationed as well.
“We were told this is just an ‘excursion’ of a couple weeks and be over. It’s now a couple of months, or getting into the second month, and there doesn’t appear to be any sign, at least until this weekend, of its ending. But the damage is literally done, and markets are going to reflect that going forward.”
Like Gradek, he expects the impact on Canadian airlines and their passengers to go beyond the recently announced surcharges. “I would expect that for Canadians, more than the inconvenience of fuel surcharges, longer distance destinations outside of North America, may be a little bit more challenging, if not impossible.”
McTeague takes a strong stance about Canada providing oil to the world in the kind of scenario the world is facing. “We have one of the largest supplies of these resources that the world desperately needs today.”
However, he says, “Canada can’t furnish it… Not without demanding that any pipeline be decarbonized. No other nation in the world would be that insane to make that kind of suggestion about its resources. But it gets a pass here in Canada.”
He realizes that may not be a popular opinion in Canada but notes he was a Liberal MP for 18 years. Now he questions the true cost of pursuing the net-zero policy when when affordability is such a prevalent issue, rather than “worrying about changes in the weather.”
Meanwhile, like Gradek, he expects European airlines to seek out Canadian jet fuel.
“You’ve got a huge lineup of people that want to buy from North America … I’m flying from Frankfurt, Germany to Toronto. I left this morning. I come here tonight, rather than worrying about not being able to get fuel in Germany. I’m going to be able to get it in Canada. And some of those planes can take a lot more than what they need to make a one-way flight so they might get enough for at least a flight and a half.”
Our website is the place for the latest breaking news, exclusive scoops, longreads and provocative commentary. Please bookmark nationalpost.com and sign up for our daily newsletter, Posted, here.