Photo by: NASA
by Suneet Bains
July 2026
Table of Contents
- Introduction
- Geopolitical Background: Hormuz as Iran's Bargaining Card
- Market Optimism: The Gap Between Physical Prices and the Futures Curve
- Silver Linings: Canada's Security Premium
- The Collapse of Peak Demand Consensus: Implications for Canadian Environmental Policy
- Conclusion: The Hormuz Crisis and Canada's Energy Future
- About the Author
- Canadian Global Affairs Institute
Introduction
Following U.S. and Israeli military strikes on Iran in late February 2026, the closure of the Strait of Hormuz in spring 2025 marks a decisive turning point in global markets, accelerating existing trends by undermining two load-bearing assumptions that have shaped investment and supply chain strategy for decades. The first is strategic: since the introduction of the Carter Doctrine in 1980, and its reinforcement by successive U.S. administrations, it has been assumed that no extra-regional power would be permitted to dominate the Persian Gulf. Markets, governments, and energy planners regarded this doctrine as a certainty, maintaining that the Strait could not remain closed because the United States would inevitably intervene. The second is structural: the expectation that global oil and gas demand would peak by 2030 and then decline, a projection routinely cited in environmental policy and amplified by forecasts. This belief has driven nearly a decade of underinvestment in hydrocarbon infrastructure worldwide. By collapsing both assumptions simultaneously, the Hormuz crisis has forced a fundamental reassessment of the global energy landscape. These assumptions are not independent. Underinvestment justified by the peak-demand consensus has left global supply with little resilience, just as the Carter Doctrine paradigm has collapsed. The result is a supply shock hitting a structurally tight market, with effects spanning both physical and financial systems. This report summarizes a Canadian Global Affairs Institute roundtable held in Toronto, Ontario, which convened energy market analysts, geopolitical strategists, and policymakers to assess the mechanics of the Strait of Hormuz crisis, the broader political dynamics that have made it a persistent risk rather than a temporary market disruption, and the implications of growing demand for secure and diversified energy sources for Canada's energy future.
Geopolitical Background: Hormuz as Iran's Bargaining Card
To understand the impacts of Hormuz, it is essential to grasp the central role of the first load-bearing assumption, which extends beyond market management into the policy realm. In 1988 neutralized Iranian naval capacity within an afternoon, a pattern long asserted by the U.S., which reinforced the belief that the United States would never allow an extra-regional, or even regional, power to dominate the Strait. Drawing on this confidence, and a severe underestimation of Iranian capabilities, the Trump administration approached Iran as a short-term issue despite cautionary predictions from tabletop exercises, while Iran leveraged this position as leverage to challenge U.S. zero-nuclear objectives, leaving it in a stronger negotiating position than ever before. Both countries are now locked in a contest over whose position erodes first. Iran knows that the 20 per cent market blockage is actively constraining supply and is waiting for the effects to reach North America, particularly as Washington waits for sanctions to affect Iran's intermediary storage capacity in an attempt to offset Iran's time advantage.
Market Optimism: The Gap Between Physical Prices and the Futures Curve
In the face of unprecedented disruption, the market remains optimistic, a disconnect likely caused by two trends that have historically shaped natural gas investment. The first is a general disbelief that such a large disruption will be allowed to persist for long. The second is that oil markets are inherently volatile. During previous disruptions,
Showing 1 reaction