Good morning. The price of oil snapped back under US$90 a barrel after U.S. President Donald Trump said the war in Iran is “very complete, pretty much.” Today, we look at how higher shipping costs and longer routes could still raise prices for businesses and consumers even if the conflict de-escalates.

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The price of oil whipsawed yesterday as investors started off on anxious footing but found comfort from a Group of Seven meeting, in which leaders said they “stand ready” to release oil from strategic reserves. Later, when Donald Trump said the war in Iran was “very complete, pretty much” and that there was “nothing left in a military sense” in the country, oil prices fell back down below US$90.

Still, even if the price of oil keeps falling, the cost of reshaping trade routes could prove a more lasting threat to the global economy.

The cost of carrying goods

Carriers have been forced to divert around Africa, adding 10 to 14 days to trips between Asia and Europe and roughly 30 per cent more fuel consumption. It will likely take more evidence that the war is abating before insurers decide it’s no longer prohibitively expensive for ships to sail key routes in the Persian Gulf.

These added costs and delays are passed along to shippers and consumers, and could ultimately become a more significant driver of price increases for imported goods than rising oil prices alone. Investors price in geopolitical risk, but the market has shifted its focus to operational disruptions such as refinery shutdown and export constraints.

As these logistical pressures and the rising price of oil (those massive tankers need fuel, too) weigh on carriers, businesses and consumers across Canada are already seeing costs being passed along.

Travel advisory

Canadians may soon pay as much as 20 per cent more to fly ahead of the peak travel months as the war pushes up jet-fuel costs.

Major carriers such as United Airlines and WestJet have already acknowledged that fares may rise sooner rather than later. With the situation in Iran already making operating flights more expensive, “it’s likely further pricing adjustments may be needed,” a WestJet spokesperson told The Globe. Porter and Air Canada said it was too early to say whether their pricing would be affected, but they operate in the same world.

The Gulf region exports more than one million barrels of aviation jet fuel a day, making up about 17 per cent of total global consumption.

More food fright

If energy costs remain high over the coming weeks, Canadians will feel the pinch first at the grocery store – where the shorter shelf life for fresh food means a greater vulnerability to global shipping disruptions. “Certainly, everybody can see the increases in gasoline prices, but I think it’ll ripple through the food supply chains in North America as well,” Fraser Johnson, professor of operations management at Western University’s Ivey Business School, told The Canadian Press.

Toy trouble, too

In a recent earnings call, Spin Master executives said they haven’t seen a “material impact” on the toy maker’s supply chain. “Of course, if this continues for an extended period of time, we will start seeing that,” company chief financial officer Jonathan Roiter said. “And there’s probably a three- or four-month lag in terms of our freight costs,” he said.

Stepping back

The one time in history the price of oil crossed US$140 a barrel – from a mark of US$52 in early 2007 to July in 2008 – inflation rose from 2 per cent to nearly 6 per cent. But a year later, economist David Rosenberg wrote in a client note yesterday, oil was back down to US$60, and inflation back to its starting point. “Tell me if you remember still talking about an oil crisis and inflation in the summer of 2009,” he wrote.

I do, because that is when I first joined the Report on Business. Great timing, me! (Please remember correlation is not causation.) But it’s fair to say I don’t bring the Great Recession up at dinner as much these days.

With a report from The Canadian Press