Good morning. Oil prices shot past US$100 a barrel for the first time since Russia invaded Ukraine, driven by fears of prolonged supply disruptions caused by the escalating conflict in the Middle East. How that complicates the road ahead for policy makers and consumers is in focus today.

Iran: The war is upending Ottawa’s push to tap into Middle East investment pools.

Resources: Conflict in Persian Gulf is threatening essential desalinated water supply.

Government spending: Ottawa is expected to nominate senior public servant Annette Ryan as the next parliamentary budget officer.

1. Supply concerns outpace risk: Oil prices surged in Asian markets this morning, sending Brent to about US$117 a barrel and the West Texas Intermediate to nearly US$116 as traders sized up the weekend’s escalation.

Iran announced that its ruling assembly of clerics chose the hardline son of Ali Khamenei as the country’s next supreme leader, and said a large-scale attack this weekend on the country’s oil-storage facilities marked a “dangerous new phase” of the conflict.

Brent – a North Sea crude blend named after a Shell oilfield – is the global benchmark for seaborne oil and reacts sharply to geopolitical risks that threaten shipping routes. It jumped last week after U.S. President Donald Trump demanded “unconditional surrender” from Tehran and Israel carried out strikes on Iranian energy infrastructure.

But as Tehran vows to fight back, and oil from the Gulf states is blocked from passage through a major global supply corridor, investors sought to lock in prices of WTI, the U.S. crude benchmark that is used to price much of the oil produced and traded across North America.

As panic grew over the Middle East, investors seeking safety bid up the price of WTI even faster than they priced in the risk of buying Brent, causing the “spread” between the two prices to narrow to almost nothing.

In most geopolitical conflicts, Brent tends to spike more sharply than WTI, which is cushioned by the relative security of the U.S. storage and supply system. Those gains usually ease once investors see signs of resolution. In Iran, investors might be waiting a while.

2. The effects on prices across Canada: With some economists now predicting another jump in oil prices after they crested the psychologically significant US$100 mark, worries are settling in over how they will weigh on businesses, consumers and global economic growth.

France said it planned to host a meeting of G7 finance ministers today to assess a potential response.

“In a conflict which is currently a local conflict in one region but has global repercussions, it is obviously essential that we co-ordinate,” said Roland Lescure, the French Economy and Finance Minister.

Even a short spike could weigh on the global outlook, economists say, and the conflict has already reduced the odds of central bank cuts around the world.

Canadian consumers are already paying the price of higher oil at the pumps, and will be feeling it with more expensive heating bills. The oil-producing provinces of Alberta, Saskatchewan and Newfoundland and Labrador will be somewhat shielded, BMO chief economist Douglas Porter wrote in a note to clients on Friday, but the rest of the country will be dealing with higher headline inflation and downward pressure on growth.

Energy accounts for almost 6 per cent of Canada’s consumer price index, meaning even a temporary 30-per-cent jump in energy costs can make big waves on headline inflation.

“And, unfortunately, investors are gradually coming to the view that the conflict and the upswing in prices may be something more than temporary.”

The February Labour Force Survey on Friday is expected to show Canada’s unemployment rate ticked up, and the international merchandise trade report on Thursday is expected to show both exports and imports slowed in January.

3. Back to the table: This isn’t the backdrop Canada wants as energy costs rise, and as it renews trade talks with Washington. One optimistic view of Dominic LeBlanc’s return to Washington after a four-month break in negotiations is that the Trump administration might want to announce a big win to balm the sting of higher oil prices. “Trump secures more access to Canada’s dairy market!” a headline might say. Let them drink milk!

Another view is that the federal minister in charge of Canada-U.S. trade is back on the White House’s radar simply owing to the logistics of organizing a mandated review of the United States-Mexico-Canada agreement, which is now almost 100 days away. I’ve had my Outlook calendar attacked by meeting requests on a similar timetable for far less than one of the world’s largest free-trade agreements.

During a recent news conference, Prime Minister Mark Carney said the USCMA trade pact, sometimes called CUSMA in Canada, “effectively has been broken in the short term” by Trump’s imposition of tariffs on Canadian autos, steel and aluminum.