In March, Canadian analyst Rory Johnston predicted that if the Strait of Hormuz stayed closed the price of oil could hit $200/barrel by summer. Earlier this month, executives from ExxonMobil and Chevron predicted $150 by mid-July.
For Canada, high oil prices are seen as a net positive: for energy sellers, this is true. For everyone else, it will mean crisis. The largest oil shock in history is headed our way and there is nothing we can do to stop it. Johnston warned the economic impact “will be like the pandemic without Covid.” This time, Canada has to get the crisis response right.
My non-partisan report, Outrunning the Storm explores risk scenarios at $90, $150 and $200 a barrel, and sets out province-by-province policies and programs, for what can be done to harden Canada’s economy and adapt to the shock. It was crafted with maximum impact and return on investment in mind: every dollar spent now will return $10 to $15 in reduced costs or increased revenue. Even at $90 a barrel, there is no scenario where these investments do not pay back. High oil costs change the landscape of the economy, with alternative investments paying back much faster.
The most important no-cost decision is approving the extension on the Bruce Nuclear Energy licence — essential in tackling Ontario’s energy crisis. Governments should spend the summer racing to shield residents against next winter’s food, fuel and supply shocks: it will deliver a guaranteed return on investment.
The three areas at the greatest risk are: Farm and food, healthcare and Northern First Nations. Manitoba alone is facing a food shock from $500 million to $900 million, and Canadians could face food inflation of 40 per cent.
Every aspect of the agricultural supply chain depends on petrochemicals. To prevent farm failure, emergency farm finance is essential, and so are propane and fertilizer reserves. Shortline railroads must be preserved. An immediate national “Victory Garden” program, launched now, will make a meaningful dent in hunger and access to food.
Health systems face multiple serious shocks – like fuel costs that will undermine rural health. Almost all medical supplies are made from petrochemicals and imported: gowns, gloves, dressings and IV lines. Medication too — insulin, antibiotics, generics, anti-cancer medications and anesthetic. Governments must establish 180-day reserves of medications while ramping up domestic drug production. The federal government must commit to emergency health transfer payments or face preventable deaths.
Without action now, Northern First Nations and Indigenous communities reliant on diesel for energy will face humanitarian crises this winter. Eighteen to 24 months of diesel should be supplied as long-term solutions are implemented.
Alberta will also face severe risks for its non-oil and gas sector, especially agriculture.
In Ontario, car sales, manufacturing and its financial risk sector are at risk. This is industrial capacity Canada cannot lose.
The Government of Canada needs to lead the response now, starting with a critical supply emergency. The report’s solutions tackle different aspects of Canada’s polycrisis, building oil shock resilience and structurally hardening the Canadian economy against future shocks:
- Mediating Canada’s current mortgage and insolvency meltdown will stabilize the economy and housing.
- A national passenger rail renewal and a rail transition would create or preserve up to 358,000 jobs at risk from auto industry shocks at auto and aviation plants.
- A national jobs program to secure 300,000 to 600,000 jobs for desperately needed work, in care and other sectors that are unfunded.
- Converting Canada’s waste methane into turquoise hydrogen and carbon materials, would create over 100,000 jobs while reducing Canada’s greenhouse gas emissions by up to 33 per cent while ending emissions from Alberta’s 80,000 abandoned wells.
Canada and the world are already in the most serious crisis since the 1930s. The U.S. is undermining our economy with tariffs, with the stated goal of making us the 51st state. Alberta separatists are helping. Extraordinary times demand the extraordinary measures of wartime-level economic responses. The Depression-era and wartime fiscal and monetary policies of C.D. Howe, Mackenzie King and the Bank of Canada provide a Canadian example of success, as the report details.
