Macro & Strategy - April 2026

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Here I Go Again (On My Own)

The Middle East situation requires a reassessment of macroeconomic balances.

“No, I don’t know where I’m going,
But I sure know where I’ve been,
Hanging on the promises,
In songs of yesterday,
And I’ve made up my mind,
I ain’t wasting no more time,
Here I go again.”
– Whitesnake

From the Strait of Hormuz to portfolios: managing energy uncertainty in 2026

After campaigning against overseas military intervention, President Trump has, once again, made up his mind, moved quickly, and gone it alone —without consulting NATO.

The military phase of the U.S.-Israel-Iran conflict had, as March was ending, been marked by air and naval operations aimed at degrading Iran’s military capabilities, industrial base, and ability to project power across the region. Even though the objectives have at times appeared blurred, Washington’s overarching goal has been to weaken Iran’s nuclear program. Israel, meanwhile, appears more openly focused on the prospect of regime change.

From a market perspective, the conflict’s most immediate impact has been on energy flows. The Strait of Hormuz, through which roughly 20% of global oil and natural gas trade normally transits, has been almost completely disrupted. At this writing, Saudi Arabia and the United Arab Emirates still have alternative pipeline routes, and Iranian oil continues to find its way to export markets, often via opaque channels. Major buyers, such as China and India, have managed to secure waivers or rely on existing enforcement gaps.

Even so, partial disruption means lower production and adds a sizable geopolitical risk premium to energy prices. And oil is only part of the story. The Gulf region also supplies a range of critical industrial commodities, including aluminum, nitrogen, and helium. These are not front-page assets, but they matter for supply chains, from agriculture to advanced manufacturing.

Highlights

• The Middle East conflict represents an energy supply shock, with its economic impact largely dependent on how long it lasts.
• Markets remain calm for now, but a prolonged shock would force a reassessment of inflation, growth, and interest-rate expectations.
• In this environment, we remain underweight bonds and overweight equities and commodities, with increased caution.

The war nobody ordered

One of the ironies of the conflict is how sharply it contradicts the Donroe Doctrine (which we discussed in February’s piece) and the narrative of American strategic retrenchment. The idea that the United States will gradually turn inward and refocus on its own hemisphere has been badly dented, as Washington once again finds itself deeply engaged in the Middle East.

Progress on the battlefield has been uneven but meaningful. Iran’s naval capabilities have been degraded, and its broader military-industrial complex has suffered substantial damage. Iran’s ability to project power in the region has been reduced, but the state of its nuclear program is still unclear. Whether the current level of degradation proves sufficient will largely determine how long the conflict drags on, and the spectre of a ground intervention still looms large.

As for regime change, expectations should remain restrained. Decapitation strikes can destabilize leadership structures, but power in Iran is institutional as much as personal. Organizations such as the Islamic Revolutionary Guard Corps remain cohesive, well armed, and deeply invested in the survival of the regime. That said, Iran is a highly diverse country of more than 90 million people, many of whom despise the Ayatollahs. Risks of internal fragmentation are real, and, if the regime is indeed toppled, what comes next is anyone’s guess. In the coming months, Iran could become more chaotic and volatile internally, a scenario that rarely produces market-friendly outcomes.

Another notable feature of this war is the limited role of traditional alliances. NATO partners, including Canada, were not consulted before the initiation of military operations and are unlikely to play a meaningful role despite occasional rhetoric about broader coalitions. This reinforces a trend toward more unilateral security actions, which in turn complicates diplomatic off-ramps.

Domestic politics in the United States also matters. Wars tend to be unpopular, especially when they raise gasoline prices and appear misaligned with promises of restraint abroad. With midterm elections approaching, higher energy costs risk amplifying voter dissatisfaction and weakening political capital, reducing the administration’s room for manoeuvre at home and abroad.

Oil shocks and the macro playbook

From an economic standpoint, military escalation involving Iran is the textbook definition of a negative supply shock. Higher energy prices raise transportation and production costs, squeeze household purchasing power, and lift headline inflation. Growth slows as real incomes are eroded.

History offers plenty of cautionary tales. The oil embargo of the early 1970s ushered in years of high inflation and unemployment. The Iranian Revolution at the end of that decade and the Gulf War in the early 1990s both preceded recessions in the United States. More recently, however, oil shocks have been less devastating. The Iraq War in the early 2000s and the Libyan Civil War in 2011 generated volatility but not global downturns.

Advanced economies are far less oil-intensive than they once were. Energy efficiency has improved, services dominate output, and alternative sources of supply have expanded. Even the energy shock triggered by the Russia-Ukraine war, although painful for Europe, did not produce a synchronized global recession.

None of these examples mean energy shocks no longer matter. If the Strait of Hormuz were severely disrupted for an extended period, or if energy infrastructure around the Gulf were materially damaged, the scale of the shock could overwhelm these buffers. Given the wide range of possible outcomes, scenario analysis is essential.

Three paths forward

We present a series of scenarios in the tables and charts below.

In a limited and temporary shock, oil prices spike but retreat quickly as supply routes adjust and tensions abate. In this case, Brent crude averages about $70 a barrel in 2026. Inflation rises modestly, growth remains intact, and markets experience little more than episodic volatility.

A severe shock envisions oil prices climbing toward $100 for several months before gradually easing.

In this scenario, Brent averages about $85 in 2026. Inflation proves more stubborn, central banks stay cautious, and equity markets endure a more meaningful correction before finding their footing.

The most challenging outcome is a very severe and prolonged shock. Here, oil prices surge beyond $120 and remain elevated. Brent averages close to $100 for the year. This scenario would mark a genuine regime shift for the global economy.

Inflation, growth, and policy under stress

In the first two scenarios, inflationary pressures remain largely confined to energy. In the United States, inflation stays below 3.0% in a limited shock and rises toward 3.5% in a severe one. A very severe shock, by contrast, risks pushing inflation well above 4.0% as higher costs bleed into goods and services more broadly.

Growth outcomes follow a similar logic, as higher energy prices function like a tax. In milder scenarios, households and firms draw on savings to absorb the hit. Global growth slows but does not stall. In a very severe shock, however, growth weakens sharply.

Net energy importers, such as Europe and Japan, are particularly vulnerable and could slide into recession. North America is more insulated, given its status as a net energy exporter, but even here growth will slow meaningfully if high prices persist.

Central banks would find themselves in an uncomfortable position. In a limited shock, policymakers can largely look through the inflation bump. In a severe shock, prolonged pauses become the default as inflation and growth risks pull in opposite directions. In the most extreme scenario, central banks may be forced to contemplate renewed tightening, pushing long-term rates higher even as growth deteriorates.

Finally, it’s important to note that financial markets have been remarkably resilient to geopolitical stress in recent years. If that trend continues, a limited shock will most likely produce only temporary volatility. A severe shock could trigger a deeper correction in global equities, although markets with heavier energy exposure, such as Canada, would be relatively more resilient.

According to our estimates, in a very severe and prolonged shock, complacency would truly break. Sustained high oil prices would weigh on valuations, raise uncertainty, and undermine risk appetite. Credit spreads would widen and equities would struggle.

Bringing it all together

Our view as we entered 2026 was that global growth would be resilient, with sticky inflation in parts of the world (the United States being a prime example).

The conflict in Iran brings fresh risks to this view, and a healthy dose of uncertainty, depending on the magnitude and duration of the ongoing oil shock. If energy disruptions are contained and temporary, the global economy can absorb the blow. If oil prices remain north of $100 for months on end, the consequences become far more serious.

So how can investors navigate such a tricky environment?

First, the key is to stay focused on macro trends. The tailwind from synchronized rate cuts over the past two years continues to point to earnings growth, so a balanced equity overweight still makes sense. Our leading indicators point to further economic acceleration in 2026, and so far, the macro data have followed accordingly. As we have shown in this document, it would take a prolonged and severe oil shock to change the course, so we’ll stay on the lookout for any changes in the trends.

Second, monetary policy is, always, a key market driver. Even though we have been vocal that markets are too complacent about the Fed’s ability to cut multiple times in 2026, we think the bar is also relatively high for a hike. The status quo on policy rates should be enough to support risk appetite throughout the year, such that any pullback or correction in risk assets would be a buying opportunity.

Third, commodities entered the year as our favourite asset class and remain as such after one quarter. Not only are we still bullish on base metals (spending on defence, infrastructure, data centres, etc.) and agriculture (climate change, geopolitical risk premium), but the energy picture has shifted dramatically, given the recent military action. Even though precious metals seem to be in a consolidation phase, we see ample reasons to own commodities, either outright or through an overweight of Canadian equities.

Fourth, we might be in for another uneventful year in duration returns, as conflicting forces keep long rates in a trading range. Even though we are inclined to think macro forces will push long rates higher, we agree with the consensus that the U.S. Department of the Treasury would probably not let long rates drift too much before acting and bringing them back, leading to middle-of-the-road returns on bonds.

Finally, currencies are likely to be volatile, as the geographical impacts of the oil shock make their way through the macro data. Net oil exporters, such as Canada and the United States, are likely to see their currencies appreciate, while Europe and Japan, both net energy importers, could face currency headwinds.

Depending on the strength of the oil shock, haven flows could also put a bid on the U.S. dollar and the Japanese yen, making the picture complicated. Overall, for Canadian investors, our bullish view on the Canadian dollar means that currency hedging should be worth a look.

Positioning

We continue to overweight equities, although with a greater degree of caution than earlier this year.

The energy shock has been severe within the commodity complex, yet equity markets have been slow to acknowledge the possibility that the disruption could linger, eventually influencing margins and household demand.

For now, investors continue to behave as though the episode will be contained, but that assumption creates an asymmetry that deserves attention. If higher costs and delayed supply- chain effects begin to surface in earnings, the market may need to reassess its optimism.

This environment also complicates the narrative around artificial intelligence, because rising input costs and a more uneven growth profile may challenge some of the sectors most associated with the theme. We have therefore maintained our equity overweight, while keeping a closer watch on underlying market behaviour but remain willing to adjust if resilience gives way to fatigue.

Our underweight in government bonds is also unchanged. Recent market reactions have reminded investors that duration cannot always be counted on as a hedge when inflation pressures remain elevated and geopolitical risks interact with supply constraints. Higher yields create potential entry points, but they also reflect the risk that central banks have less flexibility than the market once assumed. We are monitoring fixed income sentiment for signs of capitulation, which would create more attractive opportunities.

Canada is of particular interest, because the path for policy implied by the market appears inconsistent with a reasonable assessment of growth and inflation. Should positioning become more one-sided, selective duration exposure could become appealing again.

Finally, turning to commodities, we entered the conflict with a broad overweight and reduced that position as prices and volatility surged. The long-term case for this asset class continues to be supported by rising investment in artificial intelligence, growing defence needs, and a geopolitical environment that encourages firms and governments to hold more inventory and secure access to key inputs. Recent price spikes have not undermined that story, although they highlight the tendency of energy markets to move well ahead of fundamentals during periods of stress. After trimming our exposure, we still have a constructive medium-term outlook and will consider rebuilding the position if sentiment turns more cautious.

In an environment where inflation risks persist and policy credibility can be tested; real assets continue to provide valuable diversification when the traditional equity-bond balance may be less reliable.