Iran conflict's jolt to oil prices could buffer Alberta's budget deficits

Inflation fears and rising gas prices may be the most widely felt impacts of the oil price shock that the Iran conflict has triggered. But for the Alberta government, there could be a significant financial upside to this sudden global supply crunch.

The province, which is currently staring down a $4.1-billion deficit for the current fiscal year and just forecast a $9.4-billion shortfall for 2026-2027, is highly sensitive to changes in the price of oil because of how reliant its revenues are on royalties from Alberta oil production. 

The budgeting year that ends on March 31 was based on the North American benchmark West Texas Intermediate (WTI) crude averaging $61.50 US per barrel, while the coming fiscal year that begins in April forecasts $60.50.

The sudden stoppage of all oil tanker traffic through the Strait of Hormuz, through which one-fifth of the world’s crude travels, has sent prices skyward — WTI jumped by around eight per cent Monday to $71.35 by the trading day’s end.

Because the next fiscal year hasn’t begun, this sudden price hike might not have any bearing on the forward-looking budget but could brighten the Alberta balance sheet of the fiscal year now concluding.

“I suspect that rather than a $4.1 billion deficit that we were projecting in the budget, it might be somewhat less than that,” Alberta Premier Danielle Smith at a health care announcement in Lethbridge.

How much less? That will depend on how long prices stay high. 

If the benchmark price climbs by $1 US, that roughly means an extra $680 million for provincial coffers.

But that's over the course of a whole year — the impacts of these short-term price spikes might be better expressed in days.

That one-dollar rise works out to about $2 million per day for the Alberta government’s income, according to calculations by University of Calgary economist Trevor Tombe. Which means that a price $10 US higher than expected translates into an additional $20 million every day this jolt lasts.

“So if this lasts for the entire month of March, for example, that’s about $600 million [in reduced Alberta deficit] just from these four weeks alone,” Tombe told CBC News.

Should security risks for tankers in the Mideast, along with tighter global supply and high prices, persist into April, it could similarly erode the much larger deficit that Alberta just tabled for 2026-27.

But Alberta’s newly forecast budget deficit is so deep that oil lingering at current prices would still result in a $2 billion to $3 billion shortfall next year, Tombe said.

Finance Minister Nate Horner has said Alberta needs $74 US-per-barrel prices to balance its budget in the coming year.