Iran ceasefire still holds ‘considerable uncertainty’ for food, oil prices

Experts are saying that Canadians are unlikely to see a notable change in food, fuel or oil prices in the near future, as a potential reopening of the Strait of Hormuz falters and “considerable uncertainty” remains.

Canadians have seen significant spikes in affordability since the war in Iran began, particularly around the price of gasoline, with averages prices last week rising 47 cents compared to the same time a month ago. Deloitte also cut the forecast for Canada’s GDP growth, citing “uncertainty” from the Iran war.

Andrew Botterill, global financial advisory leader for energy at Deloitte Canada, told Global News on Wednesday that there will be four to eight weeks “of continued volatility” because “a lot the supply chain isn’t up and running and fully integrated like it was before the conflict.”

“Seeing the conflict, seeing the ceasefire, seeing that the now renewed talks about opening up the Strait of Hormuz, it’s important, and it’s maybe going bring this away from that $100 plus volatile situation with a lot of unknowns. And if we can get the supply chains back up and running, it’d be good,” he said.

“However, it is going to be slow to come back because we’re talking about multiple weeks of disruptions that are in supply chains and ships that haven’t been moving for a long time. And it takes a long time for these things to settle out.”  

The Strait of Hormuz handles a significant portion of global energy and fertilizer supplies and is home to some of the world’s largest fertilizer plants, but is showing no signs of reopening due to the ongoing war in the Middle East.

It is also responsible for one-third of the global trade for these nutrients, such as urea, nitrogen, sulphur and phosphates.

Sylvain Charlebois, the director of the agrifood analytics lab at Dalhousie University, said that expectations for food inflation to drop this year may be compromised due to the ongoing conflict.

“We were expecting the food inflation rate to continue to drop in the spring and early summer, but that may actually be compromised by attacks in Iran, unfortunately, keeping energy costs high, and the double whammy will be fertilizers,” he said.

“If farmers decide to not use as many fertilizers or if they don’t have access to fertilizers, that can actually impact yields and productivity,” Charlebois said. “So, if inventories remain low, or if markets estimate that inventories will be low for the fall during harvest, that may actually push prices higher.”

Mike von Massow, a food economist at the University of Guelph, said that while Iran is not a big exporter of food and “not a lot of food comes through the Strait of Hormuz,” Canadians will feel the financial effects through different costs.

“The impact on Canadian prices in the short term was just going to be those products that were going to get more expensive because of freight,” he said. “Those products that have a large proportion of their retail price that is freight.”

Massow cited the most affected foods would be “fresh fruits and vegetables, that we’re importing at this time of year,” naming broccoli, Brussels sprouts and strawberries as a few examples.

“Those sorts of things that are coming from a long way away, require some refrigeration, are going to have a bigger proportion of freight,” he said. “We expected to see two or three points of increase in those prices, and we should see those right away.”

However, Massow expects fuel prices to “come down slower than they go up, and there’s still considerable uncertainty.”

On Wednesday afternoon, Iran accused the U.S. of violating three clauses of a framework for the ceasefire deal, adding that negotiations with Washington are “unreasonable.”

“I think with the uncertainty, it’s hard to say what’s going to happen, but I wouldn’t expect in this two-week window that we’ll see a substantial decrease in fuel prices and therefore a substantial increase in prices,” von Massow said.

Oil prices fell sharply Wednesday morning following the ceasefire agreement, but when — or if — that could translate to price drops at Canadian gas pumps remains unclear.

The price for benchmark U.S. crude fell by US$16.47 to US$96.48 a barrel earlier Wednesday, while Brent crude, the international standard, fell by US$13.79 to US$95.48 a barrel.

The national average for regular, unleaded gas in Canada was $1.82.4 per litre Wednesday morning — an increase of two cents from Tuesday, CAA data showed.

Shipping companies, however, continue to struggle to get through the backlog of vessels in the Strait of Hormuz, and it remains unclear whether the ceasefire allowing some transit through the strait will hold.

While Canada is the fifth largest crude oil producer in the world, the country’s imports of crude come largely from the U.S. (54 per cent), Saudi Arabia (11 per cent), Iraq (eight per cent), and Norway (five per cent), according to Natural Resources Canada.

“We’re getting those fuel price impacts because we’re buying oil from the Middle East,” von Massow said.

“Canadian oil is more expensive because that’s a global price. But because we’re buying that oil from the Middle East and it’s coming through the Strait of Hormuz, we’re seeing those direct impacts on fuel in Canada.”

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