Trump's Iran War: Canada's economic risks and energy opportunities

As war spirals out of control in the Middle East, we're convening the hub roundtable.

I'm Roger Griffiths, publisher of the hub, joined by Sean Spear, my co-founder and

editor at large.

Sean, what a week.

Indeed, Richard, it becomes increasingly clear as the days go on that not only did the

administration not have a plan after the successful military offensive, but they're now scrambling

in real time to basically control allies and friends to help them get this war back under

control.

Yeah, I wonder though, Sean, if that is possible.

The president has, once again, shown, you know, at best you'd say a charitable, you'd

say his material personality at worse, you would say, in coherent, in uninhibited.

This is a president who has behaved very strangely since we last talked seven days ago.

I can think of numerous examples, but let's just talk about the one of the last 24 hours

where he, by all reports from American media and from the Israeli government, approved

strikes on Iran's shared gas fields with Qatar and then pops up in the aftermath of the

strikes, which elicited a strong Iranian response, attacking energy infrastructure across

the Gulf, pushing WTI close to $100 a barrel, Brent Crude well above.

The president said he didn't approve it.

In fact, now he was chastising and indicating that there would be no more strikes, unless

of course Iran annoyed him and then he would destroy Iran's oil fields.

I just, you know, at a certain point, I just worry that we have to acknowledge that America

has gone to war with a commander in chief who isn't simply far from perfect.

He seems unhinged, unbalanced, irrational.

It just seems like such a dangerous and fraught moment.

Yeah, I'm really glad, Roger, that you zeroed in on Trump's leadership or lack of leadership

because it is the central part of this story.

If you step back from him in the past couple of weeks of the American offensive, we have

seen some aspects of America at its best.

It has demonstrated, for instance, its military and technological advantage, the kind of coming

together of longstanding military strengths with U.S. supremacy, with respect to artificial

intelligence and other new technologies has created a just extraordinary military machine

and that's been on display.

Similarly, Roger, some of the efforts behind the scenes at the UN and elsewhere to bring

together the signatories of the Abraham Accords and to take that Arab-Israel relationship

to the next level, operating almost at the level of military and economic and strategic

cooperation, again, shows the kind of indispensable aspect of the United States.

And yet, notwithstanding those parts of the story that I think show the United States

in a positive light, so much of it is undermined by the fact that the president himself is incapable

of coherence and discipline and dispassion, and instead is essentially using those American

strengths to advance his own what ego, narcissism, whatever one says.

And so, I don't know, in my mind, that's the kind of tale of two stories here and a reminder

in some ways, Roger, of the kind of overwhelming paramount see of leadership.

And if reports are correct in the U.S. media, his son-in-law, Jared Kushner, is actively

in the process of raising billions of dollars for his personal hedge fund from Gulf States

in the middle of the war while acting with Steve Whitkopf as one of the president's primary

interlocutors in the peace process.

So not only is this riddled with incompetence, it seems to be steeped in corruption at a

moment that American servicemen and women, unfortunately, are dying in this war.

Let's put it back to Canada, Sean, because I think what I'm concerned about are in a sense

the home front and how this war could come home to Canada.

The last week, since we last talked, we saw some very disappointing job numbers, almost

80,000 jobs lost primarily in the private sector.

That would be a moment you'd think on the basis of that job support that later in the

week, the Bank of Canada should have cut the overnight rate on the basis that this

economy is contracting.

We are now, again, seeing significant, I mean, 80,000 jobs in the Canadian context.

That's a lot of jobs.

Factored that in the United States, that would be as if you had 800,000 job losses in

a monthly period, which would be screaming headlines across every Bloomberg terminal.

But we didn't see the Bank of Canada cut.

I saw the Bank of Canada hold, understandably, along with the U.S. Federal Reserve, Bank

of Australia hiked, I believe we also saw the Bank of England talk about the risks of

stagflation.

What's your sense on this?

Because it seems, again, that Mr. Trump's war has now caught Canada at a very economically

inopportune moment, a moment where our economy is contracting because of factors unrelated

to the war, primarily housing our single largest asset class is going through a major correction.

And I'll just end this and throw it back to you.

You know, during the course of the week, we saw the all-important, I know listeners know

that I've banged on about this, but we saw the all-important five-year Canadian bond take

back up to 3%.

What is the bond that sets all the mortgage renewals, and we're going through one this year,

one of the biggest mortgage renewals is percentage of total outstanding mortgages in

modern-taining history.

So Sean, I don't know.

You put this together and there's lots of reasons to be upset with Mr. Trump in terms

of the execution of this war, his own behavior, possibly the corruption inside his own family.

But boy, this is like a serious headache for Canada right now.

What's your team?

Yeah, I think that's all right, Roger.

We already were facing extraordinary economic uncertainty, some of the highest rates we've

ever seen because of standing questions with respect to the future of Canada U.S. trade.

I'd note this week that Jameson Greer, U.S. trade representative, said that progress

with Canada is far behind progress with Mexico, reinforces, I think, doubts about Canada's

ongoing access to the American market on a terrible free basis.

And then you layer onto that a unclear and potentially protracted conflict with Iran

that is putting real pressure on the global economy because, of course, the Gulf's disproportionate

role in energy exports to various parts of the world.

This is a pretty precarious time-rudgered for Canada's economy.

I think it's fair to say, as you said, there's a high probability that we are on the cusp

of a recession.

The job losses last month are, in some ways, maybe almost like a rear-view mirror window

into where we're headed.

And in that sense, we kind of have like a almost a kind of perfect storm here, looming

over Canada's economy, the government's revenues, the government's borrowing costs, and ultimately

the jobs, livelihoods, and household finances of millions of Canadians.

Yeah.

Longer term, though, I've been thinking about this war, and I'm thinking about Alberta and

Western Canada.

I saw, for example, that Western Select, which is the spot price for Canadian oil at the

U.S. border, which always trades at discount to WTI, but in some cases, historically had

traded as low as $30 a barrel.

Is now over $80 a barrel, and the differential to WTI has compressed with this war.

So, in the short term, this is going to be a bananza for government railtees, and

province of Alberta that was staring at a large multi-billion dollar deficit.

That's probably gone.

But longer term, Sean, I wonder if there's something here that could cause a more fundamental

realignment.

I think the Gulf states could take potentially years to recover from this, regardless of

whether this war ends tomorrow, week from now, or months from now.

The fact is that there, these attacks that have happened last 48 hours on energy infrastructure

in the Gulf region, bakes, I think, into that geography

of permanent risk premium on supply.

I'm on March break this week.

I'm coming to you from the United Kingdom, where I'm here with my family, and Britain,

Europe, heavily dependent on liquefied natural gas out of those Katari, Iranian fields,

and out of the Gulf.

Well, prices, pump here, are shot up.

There's real concerns here that Europe is facing yet another energy crisis, not three

years after Putin's invasion of Ukraine.

I wonder, Sean, again, this is a horrible war, and teens in the shorter term on the economy

are going to bear, I think, their own butcher's bill for what I think will go down in history

as one of the big mistakes of any president

that alone the second Trump term.

But I wonder, Sean, if we look forward, if we might not see a different kind of premium

on Canadian energy, a risk premium that goes the other direction, where the big European

energy company is returned to the oil sands, where there is renewed, frankly, pressure that

the Carnegie government compared to Trudeau seems more likely to respond to, to really

step up LNG, maybe even Sean think about Canada East, a pipeline out to create a spot price

along our Atlantic coast.

I think we are seeing geopolitics and energy and risk being rewritten in real time, and

it makes me bullish once the deaths settles on this war about Canada's energy proposition

and what it can offer a world when, again, I think the Gulf will take years, if it will

ever recover from this war, and now a perception that it is a region that is, you know, beset

with risks that we didn't understand, the scale of, which are now in front of all of

us, in front of all these European countries, Asian countries and elsewhere.

Yeah, I think that's great analysis, and I'll respond directly a moment, but if you'll

permit me a brief rant, because one of the arguments you've heard from opponents of

our natural resource development in general and our oil and gas sector in particular is

that over the past decade or longer, we shouldn't be constructing new pipelines because

of declining global demands, and, you know, irrespective of whether companies wanted

to deploy billions of dollars of capital for new pipeline development, these activists

and technocrats knew more than new, new better than the markets.

They could predict global trends, and they knew precisely the kind of optimal pipeline

capacity in the country, and it just so happened that the optimal capacity was no more.

And we are now seeing, you know, the old Harold McMillan line events, dear boy events,

that just at the precise moment there represents this kind of upside, as you say, because of

change economics in the Middle East, a growing premium placed on stable and reliable sources,

we've not deployed that capital to pass so that we're able to kind of seize on the moment.

But does it mean, Roger, we can't pivot, we can't move to try to solve for that today,

and you're seeing, I think, just this week alone, a lot of senior energy executives in

Canada calling on the Carnegie government to make sure it's purported ambitions around

resource development is actually matched with a company ambition and its policy agenda,

precisely because I think, as you're saying, a lot of market observers are seeing the

potential for this to be a new opportunity, another opportunity for the Canadian sector.

But it doesn't change the fact that for too long, we've let academics and activists and

technocrats substitute their judgment for the judgment of investors and of businesses

that want to deploy their capital.

Like Roger, if they were wrong then or they're wrong now, the market will punish them, right?

The whole purpose of the market system is to reward risk-taking and to punish risk-taking,

and I just find it so offensive and obnoxious that these people with no skin in the game

have substituted their own preferences for so long over the direction and the signals

of markets, and it means that we aren't ready today to kind of seize on the opportunities

that you set out, and the question for us as a society is, are we going to do something

different this time?

Are we going to let busy bodies and dogmatists and others basically swap their own preferences

for the market?

Yeah, who knows when the dust settles, I think it'll just be fascinating to see particularly

what Europe does.

I mean, they are so dependent on, right now, on that LNG and other energy coming out

of the Gulf, you almost wonder if they wouldn't volunteer to pay for an Eastern Pipeline

to do Atlantic tidewater.

I just think Canada and our geography is once again commanding a premium, and I don't

wish misfortune on the Gulf states.

This was not a war they brought on themselves.

It was a war that the prison Trump has brought on them in their energy infrastructure, but

I just think it's going to be really hard for them to put Humpty Dumpty back together

again.

Let's take a break, Sean, take a bite, or complimentary listeners, thank them for tuning

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