Oil Price Spike from Iran War Could Bolster Canada's Hand in CUSMA Talks, Experts Say

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Oil Price Spike from Iran War Could Bolster Canada's Hand in CUSMA Talks, Experts Say

With the Iran war continuing to send shockwaves across global markets, driving up prices for critical commodities such as oil, natural gas, fertilizer, and aluminum, analysts suggest that Canada may have gained unexpected leverage in its trade negotiations with the United States. As the mandatory review of the Canada-U.S.-Mexico Agreement (CUSMA) approaches, Washington's heightened need for secure and reliable suppliers could fundamentally reshape the dynamics of the North American trade relationship.

The escalating tensions in the Middle East, particularly Iran's effective closure of the Strait of Hormuz in response to a United States-Israel bombing campaign, have caused crude oil and natural gas prices to surge. Approximately one-fifth of the world's oil typically transits this vital waterway, making its disruption a critical bottleneck. However, the conflict's ramifications extend beyond fossil fuels; fertilizer inputs and potash have also experienced sharp price increases, raising concerns about global food security just weeks before planting season. Aluminum prices have similarly jumped, sending shockwaves through American industries already contending with additional tariffs.

Experts emphasize that this situation is redefining priorities for policymakers in Washington. Fen Osler Hampson, a professor of international affairs at Carleton University, notes that the U.S. will now view its secure producers and suppliers “perhaps slightly differently” than before the conflict began, when tariff terms were the sole focus. Canada, a major producer of many of these essential commodities, has consistently highlighted its role as a reliable alternative supplier. While U.S. President Donald Trump has repeatedly claimed the United States doesn’t need anything from Canada, the current reality of global markets suggests otherwise.

The pressing demand for these vital resources could compel the U.S. to adopt a more conciliatory approach towards Canada. “Suddenly, your closer partners, with whom you might have had a slightly antagonistic relationship… it may be time to play nice because they have things that (Trump) wants in abundance,” Hampson explained. The relationship between Canada and the United States has seen significant strain in recent years, marked by Trump's tariffs, his repeated calls for Canada’s annexation, and even his description of Prime Minister Mark Carney as a “governor” in a social media post.

The CUSMA agreement, negotiated during Trump’s first administration, has served as a shield for both countries from the worst effects of his tariffs. However, Trump has questioned his commitment to the deal, calling it “irrelevant” and suggesting it may have “served its purpose.” The CUSMA review sets up a three-way choice for each country in July: renew the deal for another 16 years, withdraw from it, or signal both non-renewal and non-withdrawal, which would trigger an annual review potentially prolonging negotiations for up to a decade.

Previously, Trump held significant leverage going into the CUSMA review, with his ever-changing tariff policy keeping Canada and Mexico on edge and slowing investment. The U.S. administration has also employed other tools of pressure, such as the Department of Justice's recent antitrust investigation into fertilizer producers, including Saskatchewan’s Nutrien, regarding collusion and price-fixing. While the provincial government asserted that “fertilizers are globally traded commodities in a highly competitive environment,” these investigations underscore Washington's interest in controlling vital supply chains.

Inu Manak, senior fellow for international trade at the Council on Foreign Relations, stresses that the Iran conflict and its triggered price shocks should remind Washington of its dependence on other nations when discussing CUSMA's future. “We need to have trusted partners if we’re going to actually address some of these challenges and survive these shocks,” Manak stated. She added that Canada, as a major commodity producer, is essential to the U.S. industrial base, pointing to potash, oil, and the integrated market.

Manak suggests that “the mindset going into the negotiations now is potentially shifting a bit and giving Canada space to sort of focus on those issues and to say, ‘Look, we want to work with you. We have been working with you for a very long time. Here are the things that maybe we can do to strengthen those bonds rather than to weaken them.’” Additionally, Canada may have gained leverage from the deep unpopularity of the Iran war among Americans, who are preparing for midterm elections in November. While this doesn't mean Trump's threats will cease, the current environment presents a unique opportunity for Canada to assert its interests in a shifting trade landscape.

Ekhbary News Agency