Few people would want to make a Cassandra prediction for continued high oil prices and the misery that goes with them. But it can be done without much effort.
Estimates suggest roughly one-quarter of the world’s oil supply has been taken off the market since late February, when the U.S. and Israel began bombing Iran. It is bottled up in the Persian Gulf, the Red Sea and the Black Sea.
Huge quantities of oil, natural gas, petrochemicals and other essential goods are trapped on vessels at sea by armed conflicts that show no sign of abating.
At least for now, a durable ceasefire seems too much to expect of deeply entrenched foes America and Iran, the principal combatants, with the Yemeni Houthi movement and Ukraine in supporting roles in disrupting global oil and gas flows.
“It would not surprise me if this war was still going on in January 2029, when Trump leaves office,” David Brooks, the U.S. political commentator, said last week. He was referring to the “forever war” that U.S. President Donald Trump appears to have led his country into.
Demonstrating the same resilience it showed in a 12-day Israel-Iran war in June 2025, Iran is revealed in recent satellite images to have swiftly rebuilt bombed-out bridges, missile bases and munitions factories. The rebuilding has enabled Iran to keep attacking ships in the Strait of Hormuz as well as U.S. allies in the region, including Kuwait, Bahrain, Qatar and Jordan.
“They have very impressive industrialization and reconstruction capabilities,” Ran Kochav, a former commander of Israel’s air and missile defence forces, said of Iran last week in an interview with the Wall Street Journal.
If a genuine ceasefire is elusive, it is even less realistic to imagine a return to normal levels of oil and gas supply once the armed conflicts are resolved. The world oil price and local pump prices in Toronto will remain elevated for several months to come.
War-damaged ports and petroleum processing facilities of Persian Gulf producers will take at least a year to fully repair. Qatar says its liquified natural gas plant, one of the world’s largest, will need up to five years to restore to prewar production levels.
Global oil and gas flows must transit through three choke points. The Strait of Hormuz is the exit point for Persian Gulf oil, gas and petrochemicals. It is still effectively closed by Iran’s Islamic Revolutionary Guard Corps no matter how many times Trump has declared it open.
In recent weeks, the Houthis have declared a blockade of Saudi Arabia, one of the world’s three largest oil producers. The Iran-aligned militia group says it will close the Bab al-Mandeb Strait, a transit route from the Red Sea that Saudi Arabia has been using as an alternative to Hormuz.
The Houthis’ threat is credible. They have disrupted traffic through the Bab al-Mandeb Strait several times in the last three years in their civil war against the Yemeni government.
And Ukraine’s armed forces have hit almost all of Russia’s largest oil refineries with drones and are attacking tankers in the Black Sea and the Sea of Azov carrying Russian crude.
Middle East refineries processed about 20 per cent less crude oil in this year’s second quarter than the same period in 2025.
And Ukrainian drone attacks have taken about one-third of Russia’s refining capacity offline.
The oil shock has raised the Brent benchmark oil price by about 40 per cent this year, to a current $87 per barrel. Toronto pump prices have jumped by more than 42 per cent in that period, to a current average of $1.80 per litre (Canadian).
Investment bank Goldman Sachs forecasts a world oil price of $120 a barrel if hostilities escalate. The release of strategic reserves by several advanced economies helped contain the price spike in the early months of the crisis. But they have been largely depleted, unavailable to reduce the severity of another price spike.
It may take still higher oil prices to reduce demand and ultimately prices.
“The only way to get prices back in balance is to have prices go up, such that you would have demand destruction,” Andy Lipow of Lipow Oil Associates told the Wall Street Journal.
The economic downturn needed to bring that about could be a recession scenario.
A permanently higher price for oil and gas is expected now that Iran is transforming the Strait of Hormuz from an international waterway into a toll highway.
Iran plans to collect up to $40 billion a year in fees from vessels seeking safe passage through the Strait — roughly equal to Iran’s annual oil export revenue. And the Houthis have the same idea for the Bab al-Mandeb Strait.
All the more reason to hasten our development of clean energy sources, by which Canadian energy consumers would cease to be hostages to geopolitics.
