While the world waits for a proposed deal to end the war in the Middle East to be signed off, you may have to wait awhile to see any positive economic effects, as it’s possible high prices could outlast the violence.
Werner Antweiler, professor of economics with UBC’s Sauder School of Business, tells 1130 NewsRadio markets reacted as soon as they opened after word of the deal broke on Sunday.
“If the optimism is justified, that remains to be seen.”
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He adds anyone hoping gas, grocery, and jet fuel prices will come down in the short-term can expect to wait months for things to possibly return to pre-war levels as the Strait of Hormuz remains backlogged.
Metro Vancouver drivers have some of the highest gas prices and gas taxes in the country, and Antweiler says that’s going to be the norm for now.
“That depends very much on if the oil actually starts moving through the Strait of Hormuz, because shippers are still reluctant to do so until there is a real confirmation that a deal has been struck and that both parties actually have a framework for adhering to certain rules.”
As for higher-than-usual airfare for summer and even winter trips, he adds you can expect to continue paying more than usual as some airlines have cut routes and added fees and surcharges to cover their bottom lines.
“There will be significant disruptions during the summer, simply because fuel supplies have been depleted in many locations, especially in Europe and Asia,” he said.
“North America has not been impacted, because we have our own supply of crude oil and our refineries were producing at full capacity. The problem will continue in those locations where supplies have diminished, and it will take time to replenish… and where flights will continue to be curtailed.”
Antweiler says if businesses and retailers expect higher costs to remain, so can customers.
“We are at the mercy of international oil prices, because oil is sold internationally. And at this point, we should not take comfort in assuming prices will be down significantly in the next few weeks. Again, inventories have been depleted; that will keep demand up and that means prices will remain elevated even if they come down, but they will not go back to the level seen before the start of the war.”
Fighting over control of the Strait of Hormuz has disrupted not only fuel and oil supplies but also the supply chain for items like fertilizer and even footwear, and clearing the chokepoint could take several months.
“Certainly, [it could take] three, four, five months before things can actually start to revert back to a more normal supply level. So, prices will remain elevated through the summer, and that means drivers need to be prepared to pay a premium for a lot longer than what is now suggested by the peace deal.”
On Tuesday morning, U.S. President Donald Trump claimed Iran “will never have a nuclear weapon” as part of this deal and “all hell will rain down” if it tries to get them.
Iran has maintained its nuclear program is peaceful but has yet to publicly commit to giving it up in any way.
On Monday, Prime Minister Mark Carney said Canada “welcomes” the reported deal, adding the country is ready to help restore shipping in the Strait of Hormuz if or when a deal gets done. The president says the route won’t open until Friday when the deal is officially signed, but Antweiler remains skeptical and suggests there’s still a chance the whole thing could fall through.