Earlier concerns about tariff-driven inflation have been overtaken by the U.S.–Iran conflict and Iran’s disruption of the Strait of Hormuz, which has triggered a historic surge in global energy prices. Central banks face a critical choice: resist easing policy and contain inflation, or risk repeating past mistakes like the 1970s oil shock. In their latest quarterly Market Observer, the team at Canso Investment Counsel Ltd., a leading Canadian institutional investment management firm, worries about the incoming chair of the U.S. Federal Reserve, who is likely to come under considerable pressure to ease monetary policy to help with the energy crisis. Click here for the full Market Observer.
The Canso April 2026 Market Observer starts by acknowledging the odd times in which we currently operate, where investors are navigating the uncertain and turbulent waters of Times Trump, where one social media post can send markets soaring, announce a military action or a ceasefire. One issue on the minds of the team at Canso is, of course, the situation in Iran and the Strait of Hormuz.
“The soaring global energy and oil prices question Trump’s braggadocio about a quick and surgical end to his ‘non-war’ with Iran,” they wrote. “Unfortunately, high energy prices will weaken U.S. and other global economies and cause inflation at the same time. The question is really for how long and we’re now just in the early innings of this energy disruption.”
The war drones on…
The team at Canso pointed out that the situation in Iran is constantly changing, —“No war plan survives contact with the enemy,” they noted. At present, it seems to the Observer authors that new technologies are reshaping the battlefield, especially because drones have altered the calculus of modern ground warfare.
“The Iranian regime has long invested in asymmetric weapons,” they wrote. “Russia has used borrowed Iranian Shahed drone technology in its aerial bombardment of Ukraine. Even the U.S. is said to have used reverse-engineered Shahed drones against Iran.” Drones are likely to continue to play a starring role in this conflict. The Canso teams points to North Atlantic Treaty Organization (NATO) practice war game in Estonia, where a Ukrainian 10-person drone team decimated a conventionally armed 1,000-soldier battalion as an example of what is possible.
…as energy soars
The International Energy Agency (IEA) in Paris said in its March Oil Market Report that this war is creating the largest supply disruption in the history of the global oil market.
According to the team at Canso, most energy experts believe even if there is a miraculous and immediate reopening to unimpeded ship traffic, it will take some time to restart even the undamaged facilities and obviously longer for those that have been damaged by attacks by both sides. While they suspected that Trump’s tariff strategy would take some time to feed through into U.S. inflation, the recent spike in energy prices, is unfortunately, hitting inflation and consumes’ wallet more quickly.
“The average U.S. gasoline price per gallon was just under $3 before the attack on Iran and it is now over $4 per gallon, up 33% in a month. That led to a 0.9% increase in the overall U.S. March CPI [consumer price index]. Canadian gasoline prices are up a similar 33% and other countries, especially in Asia, are having to ration gasoline and other energy products.” The team added that the pressure seems to be getting to President Donald Trump.
The markets don’t care much
To the Canso team, it is interesting how understated the stock and bond market reaction has been to the surge in energy prices. “Bond investors obviously don’t agree with the IEA that this is the largest energy shock in history and see the problem as temporary, given the benign increase in bond yields,” the team wrote “The equity markets also aren’t impounding a massive historical disruption to global energy markets and economies.”
They added that by now, investors are so used to President Trump backing off when he causes market upset that they are more fearful of missing out on the subsequent rally than the damage that higher inflation could do to their portfolios.
Inflation is the elephant in the room
As the team at Canso notes, 2024 candidate Trump unrealistically promised to get prices back to where they were before the pandemic. That has not happened.
“The real pain point for voters is affordability, and the higher gas prices they are paying are obviously not a hoax. As higher energy prices exert their effect on other parts of the economy, it will get worse before it gets better,” the authors wrote. They agree with the financial markets that inflation will not necessarily be a long-term problem, but that depends on monetary policy and whether central banks will ease policy excessively to offset this “oil shock.”
What happens next?
The Canso team is keeping an eye on Kevin Warsh, Trump’s nominee for Fed chair, who will come under considerable pressure to ease monetary policy to help with the energy crisis.
“If the other Fed governors don’t agree with looser policy, the Iran crisis just might be accompanied by a Fed crisis,” the team wrote, adding that expertise doesn’t seem to matter much in “Times Trump,” as forecasts can be overwhelmed by the mercurial President acting on “gut feel.”
What’s an investor to do? The Canso team believes that the financial markets are ignoring the scale of disruption in the energy markets, based on investor fears of missing a rally induced by a Trump social media post. For now, the team is keeping portfolios safe in higher-quality securities and a few special situations.
Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of Canso Investment Counsel Ltd., which is a member and content provider of this publication.