THE HORMUZ
TAX

Most Canadians will never see the Strait of Hormuz. It's a narrow channel between Iran and Oman, and before this year roughly a fifth of the world's oil moved through it. This fall it's become the single biggest reason your cost of living went back up.

How we got here

The United States and Israel launched joint strikes on Iran on February 28. Within days, Iranian threats against shipping had effectively shut the strait. Al Jazeera reported in March, citing the UK Maritime Trade Operations centre, that no more than five ships a day were getting through, compared with an average of 138 daily transits before the war.¹ Brent crude, the global benchmark, broke above US$100 a barrel for the first time in more than three and a half years.⁵

Traffic partly recovered over the summer. But in mid-October it got worse again. On October 16, CNBC reported that at least nine commercial ships had been attacked near Hormuz in a single week, and Brent touched US$110 for the first time since May.² Using Kpler data, CNBC put crude flowing through the strait at about 9.4 million barrels a day, roughly 70% of the prewar average.² Brent spent the back half of October in the US$110s.^6,7

Why the pain is bigger than the price of a barrel

The headline oil price understates the damage. CNN reported on October 9 that the cost of moving a barrel of crude out of the Persian Gulf has jumped from about US$2 to roughly US$33, as tanker rates and war-risk insurance soared.⁸ Producers are paying tens of millions of dollars for a single round trip through the strait. All of that gets passed down the chain to diesel, freight, farming and food.

It's also not a single conflict anymore. In October, Iran-allied Houthi forces fired missiles at Saudi Arabia, and on October 28 they claimed a hit on the kingdom's largest oil refinery.⁹ Meanwhile, an "energy ceasefire" between Russia and Ukraine that Washington tried to broker came apart, with both sides back to striking refineries and power grids.²

Where it hit home: the Bank of Canada

Canada is an oil producer, so higher crude prices help some provinces and the federal treasury. But for households, energy costs dominate. Statistics Canada reported that annual inflation rose to 3.1% in September, driven mostly by energy.³

On October 28 the Bank of Canada did something it hadn't done since July 2023: it raised its policy rate, by a quarter point to 2.50%. That ended a run of seven straight holds.^3,4 The Bank Rate moved to 2.75% and the deposit rate to 2.45%.^4,10

Governor Tiff Macklem said the hike was needed to keep high energy prices from spilling over into broader, entrenched inflation. He admitted it was a close call, because core inflation is still near 2% and the job market is soft.¹⁰ The Bank now expects inflation to finish 2026 around 3.5%, stay near 3% for most of 2027, and only return close to its 2% target by the middle of 2028.¹¹ Deputy Governor Carolyn Rogers warned that housing is already struggling, particularly in Ontario and B.C., and the hike adds to that pressure.³

Economists are split on what comes next. CIBC's Andrew Grantham told Al Jazeera he doesn't expect the rate to need to go above 2.75%. RBC's Frances Donald said the Bank had telegraphed a hike since September and that this one won't be the last.^11,12

Is there a way out?

Diplomacy is moving, slowly. Euronews reported on October 28 that U.S. Vice President JD Vance contacted a senior Iranian official to try to revive peace talks.¹³ Oil markets slipped on that news, but traders are still pricing in a war-risk premium, and a deal would not instantly fix tanker shortages, insurance costs or damaged production.

What this means for you

• Variable-rate borrowers will feel the hike almost immediately. Fixed-rate renewals coming up in 2027 will likely reprice higher too.
• Gas and diesel will track the strait more than anything Ottawa does. Watch shipping headlines, not just OPEC.
• Groceries follow diesel and freight with a lag of a few months, so relief, when it comes, won't be instant.

On Tuesday, November 3, Americans vote for every seat in the House of Representatives, 35 Senate seats and a long list of governors. Midterms are usually a referendum on the party that holds the White House. In 2026, Republicans hold the presidency and both chambers of Congress, so they have the most to defend.

The national mood

The polling averages are not kind to the incumbent party right now. PollCheck's average of the generic congressional ballot, updated October 27 and still its latest as of November 1, had Democrats at 51.1% and Republicans at 42.4%, a margin of about 8.7 points.¹⁶ A Reuters/Ipsos poll of likely voters taken October 26 had it at 53% to 44%.¹⁶

President Donald Trump's approval rating sits at 34.7% in the same October 27 average, with 62.5% disapproving.¹⁷ The Washington Examiner noted that only Harry Truman, in 1946 and 1950, posted lower presidential approval numbers at a midterm.²⁰

The issue driving voters is cost of living. Coverage from Axios, RTÉ and Washington-area outlets in the final weeks has consistently put affordability and inflation at the top of voters' concerns.²¹ That's partly the war-driven energy shock, and partly tariffs.

Turnout is already high

Early voting started in some states in September. The University of Florida's Election Lab reported more than 18 million early ballots cast after the first full week of in-person voting, according to the Washington Examiner's live blog.¹⁹ Enthusiasm surveys earlier in the cycle, including an NBC News poll, showed Democrats reporting higher interest than Republicans.²²

The map: where control gets decided

A few races sum up the battlefield:

• Texas Senate. Democrat James Talarico held a slight edge of under two points over Republican Ken Paxton in an average of recent polls cited by WORLD Radio on October 28.²³ A competitive Senate race in Texas would itself be a signal.
• Ohio Senate. Former Democratic senator Sherrod Brown led Republican Senator Jon Husted 47% to 44% in polling cited by The Daily Wire earlier in October, a race that has tightened.²⁴
• Michigan Senate. Republican Mike Rogers and Democrat Abdul El-Sayed held their second and final debate, with Rogers attacking El-Sayed's policy agenda as out of step with the state.²⁵

Republicans have tried to rally a base that polling showed as less enthusiastic, including holding a midterm convention in Dallas in September with battleground nominees and administration officials.²⁶ Their pitch leans on border security, crime and warnings about Democratic spending. Democrats are running on prices, health care and checks on executive power.

The money and the referees

Outside money is pouring in on both sides. The Washington Examiner reported that Michael Bloomberg put $80 million into the midterms in a single week this month.¹⁹

There's also a fight over the count itself. Trump has continued to claim widespread cheating in U.S. elections without evidence, as Khaleej Times noted in its explainer.²⁷ On October 27, the ACLU said in an interview with Democracy Now that the administration was already undermining confidence in results in states from Alaska to California.⁹ Supporters of the president argue that stricter rules and closer scrutiny protect election integrity. Expect both arguments to get louder if key races are close on election night.

Why Canadians should care

Control of Congress shapes U.S. trade policy, including the tariffs squeezing Canadian steel, aluminum, autos and lumber, and the coming review of the Canada-U.S.-Mexico Agreement. It also shapes how much leverage the White House has on foreign policy, including the Iran war that's pushing up our energy costs. And Ottawa tables its own budget two days later, on November 5.²⁸

A caution on polls

Polls missed in both directions in recent U.S. cycles, and turnout models are hard to get right in a midterm. An eight-point national lead is large, but House control comes down to individual districts, and the Senate map has its own math. The useful thing to watch on election night isn't the national total but a handful of bellwether counties and the Senate races above.

On Thursday, November 5, Finance Minister François-Philippe Champagne will table Budget 2026. It's the second federal budget under the fall schedule the Carney government adopted last year, and it lands in a tougher spot than anyone planned for in the spring.^29,30

Five numbers to know going in

These come from Ottawa's April spring update and the Parliamentary Budget Officer's latest outlook, as reported by The Hub on October 21:²⁸

1. $65.3 billion. The deficit Ottawa projected for the current fiscal year in its spring update. It projected $63.1 billion for 2027-28.
2. About $3 billion a year. How much deeper the PBO now thinks deficits are than it estimated in June. Parliamentary Budget Officer Annette Ryan says new spending has soaked up the extra revenue from higher oil prices.
3. More than $63 billion. The PBO's projected deficit for 2030-31, compared with the $53 billion Ottawa projected in April.
4. $55.6 billion to $76.1 billion. How much annual debt charges are expected to rise over five years, before accounting for the Bank of Canada's October rate hike.
5. Nearly $100 billion. How much the PBO estimates Ottawa's broad definition of "capital spending" inflates that category over six years. That matters because the government's plan treats capital spending differently from day-to-day spending.

The fiscal anchor problem

Governments set fiscal anchors to show they're serious about the books. The Carney government's anchor was a declining deficit-to-GDP ratio. The Hub reports Ottawa is now set to miss it.²⁸

The government also moved up its target for balancing the operating budget, the day-to-day side excluding capital investment, to 2027-28. The PBO's latest outlook says 2028-29 is more realistic. Critics, including economist Charles Lammam, argue that rising debt-service costs leave the government with little room to absorb a recession. The government's response, which Champagne repeated when he announced the budget date, is that Canada's finances still compare well with other G7 countries.³⁰

What the budget is trying to pay for

The Carney agenda, branded "Canada Strong," is built on three ideas: invest at home, find new trading partners, and reduce dependence on the United States. That has meant big-ticket commitments:

• Industry support under tariff pressure. On October 21, Ottawa and Ontario committed more than $5 billion to support the tariff-hit steel sector, according to The Logic.³¹
• Strategic stakes. On October 29, Carney announced an equity investment of up to $1.6 billion in Toronto-founded AI company Cohere, a commercial deal paired with job and computing-infrastructure commitments.³²
• A $1 trillion investment target. The government's stated goal for new public and private investment.

Supporters say this is exactly the moment to invest, with a trade war underway and allies spending heavily on defence and industry. Opponents, led by Conservative leader Pierre Poilievre, argue the government is piling up debt while Canadians struggle with costs, and that the "rupture" with the United States isn't a substitute for a plan.^33,34

What to watch on budget day

• A new anchor, or not. Does Champagne set a fresh, measurable fiscal target, or stick with April's baseline?
• Operating versus capital. How much of the new spending is labelled "investment," and does the PBO agree with that label?
• Affordability measures. With inflation at 3.1% and a rate hike just landed, expect pressure for targeted relief.
• Confidence vote math. Budgets are confidence matters. Watch what the Conservatives, Bloc Québécois and NDP say they need in exchange for support.