You might wonder how global events could affect your life in Canada—maybe your plans to buy a home or manage your mortgage. It all comes down to oil prices, and the ripple effects could shake up Canada’s housing market in significant ways. Let’s break it down, step by step.

First, let’s consider why geopolitical uncertainty could send oil prices soaring. Major oil-producing regions play a critical role in the global oil market, supplying millions of barrels daily. If disruptions—say, due to supply chain issues or production halts—cut into this output, the world could lose a significant chunk of its oil supply. Analysts from institutions like JPMorgan and the World Bank have warned that such disruptions could push oil prices to $100 or even $120 per barrel, a sharp rise from the $65-$90 range we’ve seen recently. For example, bottlenecks in key shipping routes could choke off nearly 30% of the world’s oil transit, amplifying the price spike.

Now, you might be thinking, “Higher oil prices sound tough, but how does that affect me in Canada?” Here’s where it gets interesting. Canada is a major oil producer, so higher oil prices could boost parts of our economy, particularly in places like Alberta, where increased oil revenue could stimulate local growth. But Canada’s economy is complex, and higher oil prices don’t just mean more money for oil companies. They can drive inflation across the board, and that’s where things start to hit closer to home, especially for the housing market.

When oil prices rise, it costs more to produce and transport goods—everything from groceries to construction materials. This pushes up prices for everyday items, fueling inflation. A report from the Federal Reserve noted that a 10% increase in oil prices can raise inflation in advanced economies like Canada by 0.4 to 0.6 percentage points. Higher oil prices also increase energy costs for households, from gas at the pump to home heating, leaving less money for other expenses. When inflation climbs, the Bank of Canada (BOC) often responds by raising interest rates to cool things down. The BOC is highly sensitive to inflation, determined to avoid a repeat of post-pandemic price surges.

Here’s where it gets tough for Canada’s housing market. Higher interest rates make borrowing more expensive, directly impacting mortgages. If you’re looking to buy a home, higher rates mean larger monthly payments, which could price you out of the market or force you to settle for a smaller home. For those already with a mortgage, particularly a variable-rate one, rising rates could mean bigger payments, squeezing your budget. The Bank of Canada has raised rates before to combat inflation, hiking the overnight rate from 0.25% to 5% between 2022 and 2023 to address post-pandemic pressures. If oil-driven inflation forces the BOC to keep rates high or raise them further, it could stall the housing market’s recent recovery.

There’s also the risk of stagflation—a toxic mix of high inflation and weak economic growth. If oil prices spike and inflation rises, but the economy slows due to higher costs and global uncertainty, Canada could face a recession. The Bank of Canada’s 2025 Financial Stability Report warned that prolonged economic disruptions could trigger a year-long recession, and geopolitical uncertainty could add similar pressures. In a recession, job losses or reduced hours make it harder to afford homes or keep up with mortgage payments. Global trade tensions, including with our largest trading partner, could worsen the situation, as higher oil prices exacerbate economic challenges.

If oil prices drive up inflation, the cost of building new homes could rise too, as materials and labor get pricier. This would make it harder to address Canada’s housing shortage, which a ScienceDirect study identified as a key driver of unaffordability. The study also noted that government policies often prioritize tax revenue from high property prices over increasing housing supply, which doesn’t help. An oil price shock driven by geopolitical uncertainty could worsen this problem, keeping homes unaffordable for young Canadians and first-time buyers.

On the flip side, Canada’s oil-producing regions, like Alberta, could see benefits from higher oil prices. A ScienceDirect study on oil price shocks found that they boost domestic demand in Canada due to increased oil income, which could support local economies in places like Calgary. But this boost is often uneven, and cities like Toronto and Vancouver, which rely more on financial services and trade, might not see the same lift. Plus, any short-term gains could be overshadowed by the broader economic fallout from inflation and higher interest rates.

In the end, geopolitical and economic uncertainty driving up oil prices isn’t just a distant headline—it could hit Canada’s housing market hard by increasing inflation and interest rates. While Canada’s economy has weathered storms before, like the 2008 recession or the 2014 oil price crash, the housing market is more vulnerable now after years of high prices and debt. Our hope is that global stability prevails, and we avoid this scenario altogether. But if oil prices do climb, keep an eye on how they move and what the Bank of Canada does next—it could make all the difference for your housing plans.