The global oil market is being pulled in two very different directions at the moment, and that tension is what makes this such an important point in time to understand properly.
On one side, you have long-term infrastructure finally doing what it was always meant to do, which is to make the system more efficient, more flexible, and less dependent on single routes or single buyers. On the other side, you have a sharp geopolitical escalation centred on one of the most critical energy chokepoints in the world. When those two forces collide, what you get is a system that looks more robust on paper but is still highly vulnerable in practice.
If we start with North America, the most significant development is the coming online of the Trans Mountain Expansion Project. For years, Canada has had this slightly frustrating position where it produces large volumes of oil, particularly from the oil sands, but doesn’t have the infrastructure to move that oil efficiently to global markets. That meant it was heavily reliant on the United States as a buyer, and as a result, Canadian crude often traded at a significant discount.
What this expansion has done is fundamentally change that positioning. It’s increased capacity, yes, but more importantly, it has given Canada genuine access to tidewater through its West Coast. That means oil can now be shipped directly to global markets, including Asia, rather than being forced into a relatively narrow set of destinations.
You can see the impact of that quite clearly in pricing. The differential between Western Canadian Select and West Texas Intermediate has narrowed, and that’s not because the oil itself has changed, it’s because the logistics have improved. When producers have more options about where to send their product, they naturally get a better price for it. That’s basic market dynamics, but it’s been suppressed in Canada for a long time due to infrastructure constraints.
There’s also been a shift in how that oil is physically moved. With more pipeline capacity available, reliance on crude-by-rail has dropped off, which improves efficiency and reduces costs. So from a regional perspective, this is a very real upgrade to the system. Canada is no longer a captive supplier in the same way it was before. It’s becoming a more active participant in the global market.
However, and this is where it’s important not to overstate things, this is a marginal improvement at a global level. It adds flexibility, it improves pricing, it diversifies flows, but it doesn’t fundamentally rebalance the global supply picture. The volumes involved, while significant regionally, are still small compared to what moves through the world’s key maritime routes.
And that brings us to the second part of the story, which is far more volatile and far more consequential in the short term, and that’s what’s happening around the Strait of Hormuz.
This is the single most important oil transit route in the world. Roughly a fifth of global oil supply passes through it, so any disruption here has immediate global implications. What we’re seeing now is a situation where the United States has taken a much more aggressive stance following the breakdown of diplomatic talks, effectively implementing a form of naval enforcement aimed at Iranian-linked shipping.
It’s not a total blockade in the traditional sense, and that’s actually part of the problem. What you have instead is a kind of selective restriction combined with a high degree of ambiguity. Ships that are not linked to Iran are, in theory, allowed to pass, but in practice, the situation is much less clear. That uncertainty feeds directly into the behaviour of shipowners, insurers, and operators, all of whom have to price in risk very quickly.
In shipping markets, you don’t need a complete shutdown to create disruption. You just need enough uncertainty to slow things down. If vessels hesitate, reroute, or delay entry, the flow of oil is affected, and that feeds straight into market pricing. Oil prices don’t just respond to actual supply losses, they respond to perceived risk, and right now that risk is elevated.
This situation also pulls China directly into the frame, because China is the largest importer of crude oil in the world, and a significant portion of its supply passes through that same route. The response from Beijing has been critical of the US position, with officials describing the actions as destabilising and calling for de-escalation. Statements from Xi Jinping have emphasised the importance of maintaining international norms around freedom of navigation, which is a way of framing the issue not just as a regional conflict, but as something that affects the entire global trading system.
At the same time, China is not in a position of immediate vulnerability. It has been building up strategic reserves for years, it has diversified its supply base, and it still relies heavily on domestic energy sources like coal. That gives it a buffer. It’s exposed to disruption, but it’s not under immediate pressure in the way that some other economies might be.
So what you end up with is a system where different parts are moving at very different speeds. Infrastructure developments like the Trans Mountain expansion represent long-term, structural improvements. They make the system more efficient and more flexible over time. But geopolitical events like what’s happening in the Gulf operate on a completely different timescale. They introduce immediate volatility, and they do so at points in the system that have an outsized impact.
That’s really the key distinction to understand. Infrastructure improves the system at the margins, but chokepoints control the system at scale. You can add capacity in one part of the world, but if a critical transit route is disrupted, the impact is felt globally and almost instantly.
There’s also a difference between physical supply and market psychology. Physical supply changes tend to be gradual. New pipelines come online, production increases or decreases over time, and the system adjusts. Market psychology, on the other hand, can shift in minutes. A single incident involving a tanker, or a new piece of military positioning, can move prices very quickly because traders are reacting to what might happen, not just what has already happened.
Looking ahead, there are a few variables that really matter. The first is how long this disruption lasts. If it’s short-lived, the market will absorb it as a temporary shock. If it drags on for weeks or months, then you start to see more fundamental adjustments in how oil is sourced and routed.
The second is the broader relationship between the United States and China. Energy is only one part of that relationship, but it’s a critical one, and actions in the energy space can easily spill over into trade and other areas.
The third is whether oil continues to flow through indirect or less visible channels. Even under sanctions, oil has a way of moving, and if those flows continue, the physical impact of the disruption is reduced, even if the market remains volatile.
And finally, there’s the question of alternative supply. Countries like Canada, Brazil, and others can increase exports at the margin, but none of them can replace the sheer volume that moves through the Gulf.
So when you put all of this together, the conclusion is quite clear. The global oil system is becoming more distributed in terms of where supply can come from, but it is not becoming significantly more secure. The core vulnerability remains concentrated in a small number of critical routes, and as long as those routes are exposed to geopolitical tension, the system as a whole remains fragile.
The expansion of Canadian export capacity is a positive development, and it does provide some additional resilience, but it doesn’t change the fundamental reality. The balance of power in the oil market still sits with geography, not infrastructure.
And as long as that’s the case, volatility isn’t something that occasionally appears. It’s something that is built into the system itself.
https://www.cbc.ca/news/canada/calgary/bakx-tmx-trans-mountain-oil-pipeline-full-ceraweek-9.7142587