Shocks Transmit through Energy Markets, Supply Chains, Trade, Financial Systems
This report examines how the 2026 Middle East conflict has transformed geopolitical risk into a major source of macroeconomic and financial instability, with particular implications for Canada. It argues that globalization has amplified the transmission of shocks through energy markets, supply chains, trade and financial systems. The conflict triggered oil price spikes, inflationary pressures, market volatility and concerns over global growth, while exposing vulnerabilities linked to Canada’s high household debt, housing market exposure and dependence on commodity exports.
Although Canada has benefited from higher energy and gold exports, these gains remain fragile and vulnerable to demand destruction and renewed inflation. The author highlights how Canadian financial institutions can use scenario planning and stress testing to assess the effects of energy price shocks, renewed inflation and weaker growth on their portfolios and capital resilience.