Amid concerns over inflation and increasing gas prices resulting from the oil price shock triggered by the Iran conflict, the Alberta government could see a positive financial impact due to the sudden global supply disruption. The province, currently facing a $4.1 billion deficit for the current fiscal year and projecting a $9.4 billion shortfall for 2026-2027, is heavily dependent on oil royalties for revenue.
The fiscal year ending on March 31 was based on an average price of $61.50 US per barrel for the North American benchmark West Texas Intermediate (WTI) crude, while the upcoming fiscal year starting in April forecasts $60.50. However, with the halt in oil tanker traffic through the Strait of Hormuz, where one-fifth of the world’s crude oil passes, prices have surged, with WTI rising about eight percent to $71.35.
Although the current price hike may not directly impact the upcoming fiscal year’s budget, it could positively impact the current fiscal year’s financial situation. Alberta Premier Danielle Smith mentioned at an event in Lethbridge that the projected deficit of $4.1 billion might now be lower due to the price increase.
The extent of the deficit reduction will depend on the duration of the high prices. Every $1 US increase in the benchmark price could mean an additional $680 million for the province over a year. University of Calgary economist Trevor Tombe calculated that a $1 rise equates to an extra $2 million per day for Alberta’s income, translating to $20 million daily for a $10 US increase.
If the high prices persist into April due to security risks and global supply constraints, it could further reduce the projected deficit for 2026-27. However, even with oil prices remaining high, Alberta’s significant deficit means there would still be a substantial shortfall next year.
Finance Minister Nate Horner stated that Alberta would need $74 US-per-barrel prices to balance its budget next year. Despite the conflict-driven price surge, Horner remains committed to the deficit budget and its oil price forecast based on advice from private-sector analysts. The minister emphasized the importance of conservative forecasts to allow for potential upside without overestimating to ease the budget process.
Historically, Alberta’s budgets have sometimes ended in surplus due to underestimating oil prices, while over-optimistic per-barrel price forecasts have led to deficits. The long-term disruption in the Strait of Hormuz or damage to oil infrastructure in the Gulf could drive prices higher, but a swift resolution to conflicts could stabilize prices back to supply-demand dynamics.
“As the risk diminishes, it will revert to a supply-demand calculation, aligning with our initial forecast,” Horner noted.