**
Energy markets have been rocked following a sharp escalation in hostilities between Iran and its Gulf neighbours, significantly impacting oil and liquefied natural gas (LNG) infrastructure. This intensification of conflict on Thursday has left investors rattled, leading to a turbulent trading session characterised by falling stocks and rising bond yields as concerns over prolonged disruptions to energy exports mount.
Market Reactions to Escalating Conflict
The S&P 500 index closed at 6,606.49, experiencing a decline of 0.3 per cent as it continued to slide deeper into negative territory for 2026. Since the onset of U.S. and Israeli military actions against Iran in late February, the index has plummeted roughly 4 per cent, marking a significant 5.7 per cent drop from its peak at the end of January.
In Canada, the situation appeared even more dire, with the S&P/TSX Composite Index closing at 31,854.98, down 1.4 per cent. This benchmark has now fallen approximately 8 per cent from its recent highs. While energy stocks have witnessed a surge due to rising crude prices over the past fortnight, the broader materials sector, heavily weighted with base and precious metals producers, has seen a staggering decline of over 14 per cent in just five days.
Gold’s Unexpected Decline
Traditionally viewed as a safe-haven asset during geopolitical unrest, gold has experienced a notable drop, falling 5.1 per cent to US$4,644.80 an ounce. Analysts suggest that investors in the Middle East might be selling gold to acquire U.S. dollars, which have strengthened amidst ongoing conflict. Ed Yardeni, Chief Investment Strategist at Yardeni Research, noted that rising bond yields could also be contributing to gold’s recent downturn.
Bond yields have been on the rise, reflecting increasing inflation expectations. This is largely due to fears that soaring energy prices could filter into the broader economy, potentially prompting central banks to hike interest rates or postpone further cuts. The yield on the two-year U.S. Treasury note surged towards 4 per cent early on Thursday before settling around 3.8 per cent, highlighting the volatile outlook for both the conflict and monetary policy responses.
Iran’s Retaliatory Assaults
Iran’s recent actions have been framed as retaliatory following Israel’s bombing of its South Pars natural gas field. The Islamic Republic has targeted several energy facilities in the region, including sites in Saudi Arabia, Kuwait, and Qatar. Notably, Qatar, previously the world’s second-largest LNG exporter, has ceased production as the Strait of Hormuz, a critical maritime passage, remains effectively closed. This closure has resulted in significant supply losses, with LNG shipments from the United Arab Emirates also suspended.
“That’s a significant loss of supply in the market,” remarked Meredith Freeman, senior editor at Poten & Partners. The implications of these attacks are profound, with damage reported at the Ras Laffan LNG hub in Qatar, where extensive fires have erupted due to missile strikes. Analysts at Wood Mackenzie have altered their initial expectations of a two-month disruption to LNG supplies, now predicting a more prolonged impact.
The Broader Economic Outlook
International benchmark Brent crude oil prices saw a sharp increase, nearing US$119 per barrel before retracting gains after U.S. Treasury Secretary Scott Bessent hinted at the possibility of lifting sanctions on Iranian oil stranded at sea to alleviate global supply shortages. Brent crude has surged over 50 per cent since hostilities began on February 28. Meanwhile, West Texas Intermediate crude also experienced fluctuations, ultimately closing down about 1.5 per cent after initial gains.
With no resolution in sight, many analysts are speculating that oil prices could potentially reach unprecedented levels of US$200 per barrel. The ongoing closure of the Strait of Hormuz continues to be a significant concern for energy markets, exacerbated by the International Energy Agency’s recent announcement of a release of 400 million barrels from emergency stockpiles—a measure seen as only a temporary fix.
Canada’s Strategic Position
In the context of these developments, Canada’s LNG export capabilities are becoming increasingly valuable. The Shell-led LNG Canada terminal in Kitimat has ramped up production since last June, and the nation’s strategic positioning—allowing access to Asian markets without the risks associated with Gulf transit or the Panama Canal—further solidifies its role in the evolving global energy landscape.
With additional projects like Woodfibre LNG and Cedar LNG under construction, Canada’s stature in the LNG sector is poised to grow significantly in the coming years.
Why it Matters
The escalating conflict in the Persian Gulf not only threatens regional stability but also poses significant implications for global energy markets. As supply disruptions continue to unfold and investor confidence wanes, the potential for soaring energy prices and inflation looms large. This situation underscores the interconnectedness of geopolitical tensions and market dynamics, emphasising the need for vigilance and adaptability in the face of uncertainty.
