What rising oil prices mean for your bank account

Welcome to Hub Headlines.

Today's program features the best commentary and analysis published in the Hub for March

19th.

Up first is Trevor Tum, writing on what rising oil prices mean for Canadian households.

A widening conflict involving Iran, the United States, and Israel has led to a near total

halt of shipping through the Strait of Hormuz, a passage that handles a considerable

share of global oil and gas supplies.

If disruptions persist, this could represent one of the largest supply interruptions in

recorded history.

We are already seeing the effects.

Oil prices are up roughly 50%.

Natural gas markets are also tightening since liquefied natural gas exports move through

the Strait as well, pushing prices higher, particularly in Europe.

The region is also a major supplier of fertilizers, adding pressure to agricultural inputs.

Meanwhile, shipping container costs are rising sharply in major ports around the world,

as are insurance costs.

The potential implications for economies and households are obviously significant, but

putting some numbers on the scale of the challenge may be valuable.

Canada is somewhat better positioned to absorb an energy shock today than in the past.

In the early 1970s, the amount of energy required to produce each dollar of GDP was roughly

double what it is today.

Our economy is simply far less energy intensive than it once was.

Even so, oil and gas remains central to Canada's economy, accounting for roughly two-thirds

of total energy consumption.

And gasoline alone still represents about 3% of household spending, right in the middle

of the 2.5% to 4% range, observed since at least the mid-1950s.

But the impact of higher oil prices extends far beyond what Canadians pay at the pump.

Energy is embedded throughout the economy, affecting transportation, manufacturing, agriculture,

and many other sectors.

To estimate those broader effects, I rely on a model of Canada's economy that traces

relationships across several hundred distinct product categories covering nearly the entire

structure of production and consumer spending.

This allows me to capture both the direct effects of higher fuel costs and the indirect

effects that ripple through supply chains.

If oil prices remain roughly 50% above last year's levels, the direct effect on households

would be immediate.

Higher gasoline and fuel costs alone would raise consumer prices by about 0.6%, within

two weeks of the conflict starting, average gas prices rose nearly 35 cents a liter on

average across the country.

Over a year, that's about a $500 for the average household in added costs.

And what about all the indirect supply chain implications?

Transportation, manufacturing, and agriculture all rely heavily on fuel, meaning higher

energy costs gradually push up the price of many goods and services.

Food is particularly exposed.

Agriculture is among the most energy intensive, non-energy sectors of the economy, and higher

fuel costs raise the cost of producing and transporting food.

Over time, a sustained 50% increase in crude oil prices would raise grocery prices by roughly

1%.

I estimate, adding about $75 per year for the typical household.

Including the effect on restaurant prices brings the total food-related increase to roughly

$100 annually.

Other sectors are affected as well.

Air travel alone could add roughly $50 per year to the spending of the average household,

with smaller but widespread increases appearing across many other goods and services.

Taken together, a sustained 50% rise in oil prices could push overall inflation a little

more than 1%age point higher.

And if fertilizer prices rise by a similar amount, as early indications suggest, the total

effect on inflation could reach about 1.2%age points, meaning inflation would well exceed

3% overall.

In this scenario, Canadian food prices alone could increase by roughly 1.6%.

That translates to about $120 more per year for groceries, which rises to roughly $150

once higher restaurant prices are included and to $175 with alcohol.

For the typical household, the overall cost increase would be nearly $1,000 per year.

Across the economy, the total effect amounts to roughly a $17 billion hit to Canadian consumers

from this shock.

How large the impact ultimately becomes depends on how far oil prices rise and how long they

remain elevated.

If crude prices were to climb to around $200 per barrel and stay there for a sustained

period, the effects would be far larger.

Even could exceed 6%, the typical household could face roughly $3,600 in additional annual

costs, and the total hit to Canadian consumers could reach about $60 billion.

But Canada is not only a consumer of oil, it is also a major producer.

With over 1.9 billion barrels of annual production, higher prices generate enormous gains in income

for producers, workers, investors, and governments.

At prices near $200 per barrel, those gains would be roughly 4 to 5 times larger than

the added costs faced by consumers.

That tension sits at the center of every oil shock in Canada.

Higher prices strain household budgets, but they also increase national income in a country

that is one of the world's largest energy producers.

What matters then is not whether higher oil prices are good or bad for Canada, but how

their effects are distributed and over what time horizon.

The same shock that raises national income can simultaneously erode purchasing power for

millions of households.

The estimates here help anchor that distinction.

They show that even in a country that benefits from higher energy prices overall, the first

order effect is an increase in the cost of living, one that is measurable, material, and

for many, difficult to avoid.

That was an analysis by Trevor Tum.

He is a professor of economics at the University of Calgary.

You can read the full text of his article on our website, the hub.ca.

Our second essay is by Christopher Dumbit, writing on how accommodation hollowed out

Canadian nationalism.

Should Canada put the national interest first?

The Canadian answer has usually been sort of, maybe, kind of.

It depends.

Even claiming that Canada has a single national interest has often triggered a cascade of questions.

Who is a part of it and who is not?

Does it conflict with the special claims of Quebecers?

What about Aboriginal rights?

Can we even speak of a single Canadian culture?

Shouldn't we instead celebrate diversity as our culture?

Mark Carney's government is living through a modern version of these struggles as it tries

to identify projects of national significance.

This is nothing new under the cold Canadian sun.

In the 1870s, the young Canadian government wondered whether it could build a national

railway to the Pacific.

Maybe, but critics soon asked whether the project unfairly benefited Eastern capitalists.

And even if it did tie the nation together from East to West, others now argue that it

should not be celebrated because it destroyed indigenous livelihoods and sovereignty.

The pattern appeared again in wartime.

Should Canada impose conscription to fight a total war against Germany and Japan?

That might be what many English Canadians wanted, but would French Canadians rebel?

Or consider social programs?

Could Canada create a national pension plan?

It sounded like a good idea.

But shouldn't Quebec be allowed to opt out with compensation and create its own version?

Canada even had its own Canada First movement in the 19th century.

After the assassination of Darcy McGee, a group of British Canadians dreamed of building

a culturally nationalist movement that could transcend these divisions within the new country.

But it collapsed almost immediately.

Canada firsters spoke in the 19th century language of race and religion, too easily pitting

Catholic against Protestant and English against French.

The movement divided the nation it wanted to unite almost as soon as it appeared.

Even in the 20th century, when John Deven Baker asserted a civil rights-based one-Canada

vision, a celebration of un-hyphenated Canadianism, he was ultimately criticized for ignoring

the country's divisions.

Deven Baker dared to suggest that Canadians should be Canadians first.

His critics called the idea naive.

Foolish.

Then came Leicester Pearson, who advanced the notion of two founding nations.

With Quebec's separatism looming in the background, and FLQ bombs and murders pushing

Ottawa to act, Pearson embraced a more asymmetrical federalism.

Quebec would create its own pension plan and gradually assume control over areas such

as immigration and aspects of foreign relations that had once been clearly federal responsibilities.

We were told it had to be done.

Perhaps it did.

But actions have consequences.

Canadians today live with the consequences of building a country in which the national

interest has often ranked second to local, provincial, or ethnic identity.

In 1982, Pierre Trudeau in the premieres agreed to include Section 35 in the Constitution,

guaranteeing existing aboriginal rights.

Was this a vague concept that few people at the time could define?

Yes.

Did some warn that it could lead to a major expansion of rights claims and challenges

to provincial and federal sovereignty?

They did.

Many participants at the 1982 constitutional table would likely be startled by how courts

have since interpreted Section 35, expanding the scope of those rights in ways that were

never explicitly agreed upon.

Yet this concession, too, was made in order to go along to get along.

Another accommodation, another effort to pursue justice by dividing authority within the

national framework.

The best of intentions.

But when a country continually subdivides itself, parsing out powers, exemptions, and special

arrangements to nations within the nation, it becomes increasingly difficult to claim

a single national interest exists at all.

And once that pattern is established, it should not be surprising when other regions

make similar demands for special accommodation.

Hello, Alberta separatists.

Danielle Smith's proposed referendum questions contain some Western Canadian quirks.

But in several areas, immigration authority, the ability to opt out of national programs

with compensation, they merely echo concessions Ottawa has long granted Quebec.

In effect, they demand their own form of asymmetrical federalism, backed by the implicit threat

of separatism.

Plusa Shonja, the same logic also echoes many indigenous political claims, demands for

local control, economic ownership of resource projects, and forms of sovereignty, accompanied

by the silent threat of blockades or prolonged litigation if concessions are not granted.

For some Canadians, this entire process is admirable.

They argue it is precisely what defines Canada, a country united by its willingness to

accommodate differences in reconciled competing claims.

But if you happen to live in Alberta, you might notice that some differences are more readily

accommodated than others.

As Orwell put it, all animals are equal, but some animals are more equal than others.

Taken as a whole, this legacy of national hesitation makes governing difficult.

Is it any wonder that Carney spends so much time abroad signing international agreements?

Foreign policy is one of the few areas where a Canadian government can still act as a single

whole with relative clarity about the national interest.

But Carney's real test will come when he finally returns home.

Canada's genius has always been accommodation.

But accommodation, repeated often enough, can gradually hollow out the idea that the

country itself even has a single political purpose.

When Carney eventually tries to move forward with projects deemed nationally significant,

their mining developments, high speed rail, or God forbid a new pipeline, he will run directly

into Canada's familiar pattern of internal division.

That's when we'll truly find out who is willing to embrace an elbows up style of nationalism.

Until then, we're left wondering, whose elbows, defending which nation?

That was a commentary by Christopher Dumbit.

He is a professor of history at Trent University.

You can read the full text of his article on our website, the hub.ca.

That's it for today's edition of Hub headlines.

We hope you enjoyed the program.

Hub headlines is produced by Alicia Rao.

This program was narrated by automated voices.

Thanks for listening.