Monday Market Minute | Mar 02, 2026

The story shifts from tariffs to a geopolitical oil shock as the Middle East war escalates

What Moved

The macro narrative changed lanes last week. The tariff drama that dominated February has been overtaken by a geopolitical energy shock: the war between the United States, Israel, and Iran that began in late February escalated further, and oil is firming on fears for the Strait of Hormuz, where tanker traffic has slowed close to a standstill. The result was a textbook risk-off session — equities down, crude and government bond yields up, and the US dollar firmer. The Canadian dollar, which trades with an oil-sensitive reflex, held near USD/CAD 1.38 as crude climbed. Meanwhile the trade story quietly reinforced Canada's position rather than threatening it. The Section 122 surcharge — a 10% ad valorem duty with a 15% statutory ceiling — has been in force since February 24, but USMCA/CUSMA-compliant Canadian goods and energy remain exempt. That carve-out is proving to be the durable feature of the whole tariff episode, leaving Canadian cross-border exposure far lighter than the headline rate implies.

Why It Matters

The driver of the risk calculus is no longer the tariff — it is energy. That distinction matters for how private market investors read the months ahead. An oil shock feeds directly into inflation, and energy-linked price pressure is exactly the kind of development that can delay any move toward Bank of Canada easing, even with growth clearly soft. For allocators, a war premium is a premium on uncertainty: neither its size nor its duration can be underwritten with confidence while Hormuz stays contested. In that environment, the appeal of short-duration and bridge strategies increases — capital that can be marked, repriced, and redeployed over months rather than committed blind across a multi-year horizon. Long-dated assets, by contrast, must now carry an energy-inflation discount that was not in the numbers a month ago.

Signal to Watch

Watch the Strait of Hormuz shipping flows — a genuine reopening would let the war premium bleed out of crude quickly, while a prolonged closure entrenches it. Also watch Treasury chatter around the surcharge: there is talk it could be pushed toward its 15% statutory ceiling, though no formal move has been made, and any increase would still leave USMCA-compliant Canadian goods on the exempt side of the line.