In a pickle

   By Guest Blogger Ryan Lewenza

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Coming into this year, we highlighted several risks to both the markets and our broader outlook, with President Trump ranking high on that list. In our 2026 Market Outlook presentation, which we discuss with clients during our planning and review meetings, we wrote: “Trump’s increasingly erratic and confrontational approach could be destabilizing.” You think?!

Unfortunately, that risk appears to have intensified. Trump’s decision to go to war with Iran has introduced a significant new source of instability, seemingly driven by the belief that the Iranian regime would topple as quickly and easily as Nicolás Maduro’s government did in Venezuela.

Now, as reality sets in, President Trump appears to be realizing that the situation may be more complex than initially anticipated and is searching for a way to get out of the pickle he put himself in.

Key risks to our 2026 outlook

Source: Turner Investments, 2026 Outlook

This blog treads lightly on the politics of the conflict, focusing instead on the potential economic and market implications. At the centre of the story is oil.

For the past 47 years, since the 1979 Islamic Revolution and the establishment of the Islamic Republic of Iran, the Strait of Hormuz has remained open to the free and relatively safe passage of ships and cargo. With the current conflict escalating, however, Iran has recognized the significant leverage it holds through its control of this strategically vital waterway.

Approximately 20% of the world’s oil and natural gas supplies transit through the Strait of Hormuz. Iran’s closure of the Strait has severely disrupted global shipping routes, stranding vessels and obstructing the flow of critical energy supplies to international markets.

Adding to concerns, the conflict has broadened with Yemen’s Houthis announcing a naval blockade of the Bab el-Mandeb Strait, a key shipping route through which approximately 8-9 million barrels of oil and refined petroleum products pass each day. The Houthis have reportedly targeted Saudi oil tankers with missiles and drones, further intensifying risks to global energy transportation. With disruptions affecting these two critical maritime chokepoints, a significant portion of the world’s oil and natural gas supply could face delays in reaching the countries that depend on these energy flows.

As geopolitical tensions have intensified and concerns over potential supply disruptions have grown, oil prices have surged in recent days, rising from roughly US$70 per barrel at the beginning of the month to more than US$90 per barrel today. Higher crude oil prices will almost certainly translate into increased gasoline prices for consumers, adding further inflationary pressure at a time when fuel costs are already elevated.

U.S. gasoline prices are near record highs

Source: Bloomberg, Turner Investments

If that wasn’t enough, we also have dwindling oil inventories to contend with. The Strategic Petroleum Reserve (SPR) is the United States’ emergency crude oil stockpile, stored in vast underground salt caverns along the Gulf Coast. It was created in the aftermath of the 1970s oil embargo to protect the U.S. economy from future supply shocks and geopolitical disruptions.

At the outset of the Iran conflict, President Trump and the Department of Energy authorized the release of 172 million barrels of oil from the SPR to help offset supply disruptions stemming from the closure of the Strait of Hormuz. This was part of a broader coordinated effort among International Energy Agency (IEA) member countries, which collectively committed 400 million barrels to global markets in an effort to stabilize supplies and ease upward pressure on oil prices.

As the chart below illustrates, the U.S. SPR has now fallen by roughly 50% from its peak and sits at its lowest level since 1983. Other countries – particularly energy-importing nations in Asia such as Japan and South Korea – are facing similar challenges as they draw down strategic reserves to cushion the impact of higher energy costs.

This has raised concerns about the risk of approaching so-called “tank bottoms” – the minimum operating level below which oil cannot be practically withdrawn from storage facilities. While we are not there yet, reserve levels are becoming uncomfortably low.

This reality helps explain the urgency behind President Trump’s earlier Memorandum of Understanding and his comments at the G7 summit regarding the need to reach a resolution with Iran. Policymakers recognize that a prolonged oil shock, combined with depleted strategic reserves, could significantly increase the risk of a major slowdown in both the U.S. and global economy.

US strategic oil reserves are at multi decade lows

Source: Bloomberg, Turner Investments

As I continue to stress, the price of oil remains the single most important variable to watch. If the conflict persists and the Strait of Hormuz and the Bab el-Mandeb Strait remain disrupted, we could see a significant spike in oil prices. That would raise the risk of a broader economic slowdown.

This is why a resolution to the US/Iran conflict is so important. Markets can withstand a great deal of uncertainty, but a sustained disruption to global energy supplies is a much more serious threat. We are hopeful that cooler heads will prevail, that the conflict does not escalate into a prolonged ground war, and that these critical shipping routes are reopened.

If that happens, energy markets should stabilize and many of the current economic concerns could ease. However, if the conflict drags on and supply disruptions intensify, the consequences could extend well beyond the energy sector, putting meaningful pressure on both the global economy and financial markets.

For now, the situation bears very close monitoring. Let’s hope diplomacy wins out before the economic costs become substantially more severe.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/07/25/in-a-pickle/