Shortly after Canada and other Western democracies announced sanctions on Russia, the world heard a frightening warning about the impact they would have — not just on Russia, but on the global economy.
The warning came from Russia’s deputy prime minister, Alexander Novak, and its focus was the world price of oil.
“It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market,” Novak said in a televised statement.
“The surge in prices would be unpredictable,” he warned. “It would be $300 per barrel, if not more.”
Oil above $300 a barrel?
As the North American price of oil fell back to about $100 this week, it was easy to scoff at the Russian official’s alarmist warning.
But while there are good reasons that oil prices above $300 US are not in the cards, the invasion of Ukraine has set in motion a series of events that will lead to a serious disruption of the global economy — likely to affect Russia and Western democracies long after the bombs have stopped falling in Ukraine.
There are two key parts of that disruption. One is something called “demand destruction” — the move to use less of the high-priced commodities produced by Russia. The other is a new global quest for greater security in supply chains in a world that has proven itself more volatile than most of us had thought just a few months ago.
As representatives of the oil cartel OPEC gather in Vienna on Thursday, and peace talks in Turkey offer glimmers of hope that the killing of Ukrainian civilians in Vladimir Putin’s reckless war might end, the volatile price of oil has retreated again.
But even as Brent crude — the world oil price used outside North America — reached toward $130 US a barrel, experienced oil market watchers like longtime petroleum geologist and energy analyst Art Berman said Novak’s prediction was laughable.
“A Russian official’s opinion about oil price is worth as much as Donald Trump’s opinion about results of the 2020 U.S. election,” quipped the Texas-based Berman in a recent email conversation.
Industry caught with pants down
Despite the trillions of dollars at stake, the oil market is complex and difficult to predict. In 2014, for example, despite a fortune spent on research, the global industry was caught with its pants down as the North American price for oil tumbled abruptly from about $100 US a barrel to less than $30 in a year and a half.
That kind of uncertainty leaves an opening for people like Rory Johnston, the founder of Toronto-based Commodity Context who writes about the global energy industry. His latest report, out Tuesday, is titled “Oil’s Russia-Sized Hole,” about a world market buffeted by a new oil shock.
Despite the recent decline, Johnston sees oil prices remaining strong as large Western companies shun Russian oil and continue to wind down shipping from Russian ports once existing contracts run out.
A Russian oil worker in the Yarakta Oil Field. In 2019, when this photograph was taken, oil and gas generated 60 per cent of the country’s exports and 40 per cent of government revenue. Demand destruction is expected to have a tremendous long-term effect on its economy. (Vasily Fedosenko/Reuters)
As United Arab Emirates Minister of Energy Suhail al-Mazrouei said in advance of the OPEC meeting, there is no easy way to replace the 10 million barrels a day Russia contributes to world supply. Of course, all of that supply is not disappearing. There are still many buyers of Russian crude, including China and India — and there are now reports that some of that Russian oil is being laundered and resold as if it came from someplace else.
Canada is increasing production, but Johnston said progress is slow, and any increases fly in the face of Tuesday’s federal government plan to cut greenhouse gases from the oil and gas sector. Johnston says that while U.S. shale oil could be brought on more quickly, investors have had their fingers burned in the past when oil prices fell. They fear the same thing will happen again and have been reluctant to risk their cash.
“All us analysts trying to think about where global supply and demand model balances, that is where you get really, really high prices that prompt some kind of demand destruction,” Johnston said in a telephone interview. “Prices need to rise high enough in order to get people to drive less and fly less and consume less fuel overall.”
For Russia, which in 2019 depended on fossil fuels for 60 per cent of its exports and 40 per cent of government revenue, demand destruction will have a tremendous long-term effect on that country’s economy.
Seeking secure living standards
The search for alternatives to Russian oil and gas may be part of a much bigger economic and political split into trading blocks, triggered by the invasion of Ukraine, said economist Dane Rowlands of Carleton University’s Norman Paterson School of International Affairs in Ottawa.
Clearly European countries — shocked into action when they realized how much clout Russian energy exports had on their economies — are looking for ways to transition away from fossil fuels altogether as a matter of regional security, even if it is more expensive. Inevitably that may lead to a shrinking of the entire global economy, at least in the short term.
“The shift that people are looking at now is the tradeoff between standard of living itself and the security of that standard of living,” Rowlands said. “I don’t think the Europeans are going to want to be in a position where Russia dictates to them by the threat of withholding oil and gas.”
When supply chains broke down in the wake of the global pandemic, some experts woke up to the security implications of losing access to goods essential for the North American economy. Russia’s invasion of Ukraine brought that home with a vengeance, and Western governments, including Canada, are looking for ways to shorten supply lines and find sources of supply from countries with trustworthy democracies, Rowlands said. That includes energy but also green technology.
Replacing Russia’s energy will be the hardest part for the West, he said but, but on the other side of that divide, there are already indications that Russia, hit by economic sanctions, is running out of key Western imports that it must now try to produce for itself, which, Rowlands said, will be a much harder task.
“Obviously the amount of restructuring that has to occur in Russia will be huge compared to what it’s going to be in the West,” Rowlands said.
WATCH | Shift away from fossil fuels will build environmental economies, Trudeau says:
Trudeau says a shift away from fossil fuels will build environmental economies
2 days ago
Duration 1:32
Prime Minister Justin Trudeau says the shift away from reliance on Russian oil and gas will lead to stronger environmental economies. 1:32
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
