Countries around the world are grappling with skyrocketing costs of key commodities such as oil and fertilizers as the war with Iran continues to disrupt global trade.
With no end in sight, the war is likely to overshadow trade negotiations ahead of the mandatory review of the Canada-United States-Mexico Trade Agreement (CUSMA) and could ultimately offer Canada more leverage in those talks.
“If you’re sitting in Washington and you’re looking at what’s happening in global markets, you’re going to look at your safe producers and suppliers maybe slightly differently than the way you… might have looked at them before the conflict started, which was purely in terms of tariffs,” said Fen Osler Hampson, a professor of international affairs at Carleton University in Ottawa and co-chair of the Expert Group on Canada-U.S. Relations.
Crude oil and natural gas prices soared after Iran essentially closed the Strait of Hormuz in response to the US and Israeli bombing campaign.
One-fifth of the world’s oil normally sails through the strait.
But oil and gas are not the only products affected.
Fertilizer and potash inputs are also being delayed, causing global prices to soar with just weeks left in the planting season.
American farmers are already feeling the impact of US President Donald Trump’s erratic foreign and trade policies. The Trump administration provided a bailout last year after farmers were hit by rising costs and falling sales due to the president’s global tariffs.
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Aluminum prices also rose after the war with Iran began, sending shock waves through U.S. industries already facing separate 50 percent tariffs imposed by Trump on the product.
Canada is an alternative supplier for many of those key products. Trump has repeatedly claimed that the United States doesn’t need anything from Canada; The war in the Middle East might suggest otherwise.
“Suddenly your closest associates, who you might have had a slightly antagonistic relationship with… it may be time to be nice because they have things that (Trump) wants in abundance,” Hampson said.
The relationship between Canada and the United States has been disrupted by Trump’s tariffs and his repeated calls for Canada’s annexation. Trump called Prime Minister Mark Carney a “governor” in a social media post earlier this week.
Canadian and Mexican officials have been preparing for tough negotiations over the continental trade pact known as CUSMA, which has been shielding both countries from the worst effects of Trump’s tariffs.
Trump has questioned his commitment to CUSMA, which was negotiated during his first administration. The president called the agreement “irrelevant” and said it could have served its purpose.
The CUSMA review sets out a triple choice for each country to make in July. They can renew the agreement for another 16 years, withdraw from it or indicate both non-renewal and non-withdrawal, which would trigger an annual review that could keep negotiations going for up to a decade.
Trump had a lot of influence on the CUSMA review. Its ever-changing tariff policy kept Canada and Mexico on edge and slowed investment as businesses in both countries sought stability.
The Trump administration also has other tools to pressure America’s closest neighbors.
The Department of Justice recently launched an antitrust investigation into fertilizer producers, including Saskatchewan’s Nutrien, over collusion and price fixing, Bloomberg reported last week.
The Saskatchewan government is aware of the investigation, the province’s Ministry of Energy and Resources said in a news release.
“Fertilizers are products traded globally in a highly competitive environment,” the statement says. “The price is determined by the market, not by the producing companies.”
While it is unclear whether that investigation is directly related to the CUSMA negotiations, potash is certainly on the Trump administration’s mind as the war with Iran continues.
Luke Lindberg, undersecretary of Commerce and Foreign Agricultural Affairs at the U.S. Department of Agriculture, recently told Politico that “any company or part of the fertilizer supply chain that attempts to take advantage of this opportunity to raise prices for American farmers and ranchers will not be tolerated, and I think that is the message that will be clearly conveyed.”
The conflict with Iran and the price shocks it has unleashed should remind Washington that the United States depends on other nations when it comes to talking about the future of CUSMA, said Inu Manak, senior fellow for international trade at the Council on Foreign Relations.
“We need to have reliable partners if we really want to address some of these challenges and survive these crises,” Manak said.
As a major commodity producer, Canada is essential to the U.S. industrial base, he added, pointing to potash, oil and the integrated market.
“I think in some ways the mindset of the negotiations now is potentially changing a little bit and giving Canada room to focus on those issues and say, ‘Look, we want to work with you. We’ve been working with you for a long time. These are the things that maybe we can do to strengthen those ties rather than weaken them,'” he said.
Manak said Canada may also have drawn influence from the deep unpopularity of the Iran war among Americans, who are preparing to go to the polls for midterm elections in November.
That doesn’t mean Trump’s threats will stop, he added.
“Buckle up in the face of a lot of uncertainty.”
— With files from The Associated Press
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