11:18 AM EST, 03/02/2026 (MT Newswires) -- Heightened geopolitical risk in the Middle East has materially increased the probability of a broader regional conflict, said Scotiabank.

Ongoing military operations in Iran have introduced significant uncertainty for global energy markets, elevating the risk of future supply disruptions, noted. While the initial market reaction reflects a "fear premium," the persistence and magnitude of the price surge will ultimately depend on whether physical supply is impaired.

Given the fluid environment, Scotiabank provided model-based rules of thumb to help assess the potential macroeconomic implications of a sustained oil price shock for Canada.

According to Scotiabank, as a net energy exporter, Canada benefits from an improvement in its terms of trade when oil prices rise, but the transmission channels differ in strength:

-- Income & Investment: Higher oil prices represent a sizeable nominal income transfer into Canada. Energy sector profits and investment rise, supporting employment and eventually household spending. These gains are partly offset by a squeeze on real disposable income; higher gasoline prices act as a regressive tax, reducing discretionary purchasing power. On balance, real gross domestic product increases by 0.5% in year two.

-- Inflation & Policy Response: Total consumer price index rises by 0.2 percentage points, though core inflation remains relatively contained. Stronger domestic demand still generates some price pressures, prompting the Bank of Canada to increase the policy rate by roughly 30 basis points more than otherwise.

-- Currency Appreciation: Stronger demand for Canadian dollars (CAD or loonie) leads to a CAD appreciation of about 3%, dampening imported inflation but weighing on non-energy exports.

Key uncertainties include the duration of the shock, the possibility of a weak CAD-oil correlation, and the potential tightening of financial conditions -- each of which could materially alter the economic impact, stated Scotiabank.