With everything happening in the Middle East, there’s been a lot of focus on rising oil prices and the risk that inflation could reaccelerate.

That’s understandable—but when you step back, the bigger picture may actually be pointing in the opposite direction.

Right now, oil markets feel tight. Production across parts of the Middle East has been disrupted, and the world is relying more heavily on inventories. That’s what’s driving the current price pressure.

But underneath the surface, there are some important shifts taking place.

OPEC, which historically managed supply, is becoming less coordinated and less influential. The UAE’s decision to leave the group is a notable signal—countries are increasingly focused on maximizing their own production rather than working together to restrict it.

At the same time, there is a significant amount of supply that is currently offline but not permanently lost. If the geopolitical situation stabilizes, that supply can come back. On top of that, there are multiple sources of potential new supply:

• Iran could increase exports if sanctions are eased

• Venezuela has a path to gradually bring more supply online

• Several producers already have spare capacity and are incentivized to use it

Put together, this creates a setup where today’s tight market could turn into a period of oversupply more quickly than most expect.

“The cure for high prices is high prices”—Rick Rule, legendary commodity trader

When prices rise, producers respond. Countries ramp up projects, invest in new supply, and look for ways to bring more production online. The key point is that this doesn’t happen overnight—energy markets move more like a large ship than a speedboat. It takes time to turn.

But once that supply begins to come through, the shift can be meaningful.

We’ve seen this pattern play out across other markets:

• In the U.S., egg prices surged (from $2 to $5 US in 2022) and then fell back to $2 once production increased a year later

• In Canada, strong pre-sale demand in 2021 led to overbuilding, and now that those projects are completing, excess supply is putting significant downward pressure on prices

Commodities tend to follow this same cycle: scarcity leads to higher prices, which leads to overproduction, which ultimately brings prices back down.

From a timing perspective, this often plays out over 8 to 18 months—not immediately, but not that far out either.

So while we do expect some near-term inflation pressure from higher oil prices, the medium-term outlook is more balanced, and likely disinflationary if supply comes back as expected.

There’s also a second force at play that is worth keeping in mind: technology

While higher energy prices tend to push costs up through the economy, technological advancement tends to do the opposite. As innovation spreads—particularly with AI and automation—it lowers costs, improves efficiency, and puts downward pressure on prices over time.

There may be some inflation during the buildout phase, but the longer-term effect of technology is typically deflationary.

So what we’re seeing right now is a bit of a tug of war:

• Short term: oil-driven inflation pressures

• Medium term: increased supply bringing those pressures down

• Long term: technology continuing to push costs lower

From a market perspective, this distinction matters.

In the short term, higher oil prices can create volatility and renewed inflation concerns. But over the medium term, if supply increases and oil prices ease:

• Inflation pressures tend to fall

• Consumers benefit from lower energy costs

• Businesses see improved margins

• Central banks gain flexibility on interest rates

In other words, what looks inflationary today may end up being disinflationary over the next phase.

Markets tend to anticipate this shift ahead of time. By the time the data clearly reflects lower inflation, asset prices have often already adjusted (typically higher).

The market has become bored with Iran

While the Iran situation still dominates headlines, markets have largely begun to look past it. Not because it’s resolved—but because there is more clarity around the range of outcomes. Oil is still finding its way to market, even if not through traditional routes, and the worst-case scenarios are becoming less likely.

Instead, attention has shifted elsewhere.

This week is a major earnings week, with many of the largest technology companies reporting and shaping expectations for the rest of the year. At the same time, markets are increasingly focused on the future direction of the Federal Reserve, including leadership changes and what that could mean for policy.

That shift in focus tells you something important. Markets don’t need perfect resolution—they just need enough clarity to move forward.

There’s also a longer-term implication that may create opportunities closer to home.

Events like this tend to remind global buyers—particularly in Europe and Asia—of the risks of relying too heavily on a single region for energy supply. Diversification becomes a priority.

For Canada, as a major energy producer, that presents a potential opportunity. If we are able to position ourselves effectively and build the necessary infrastructure and relationships, this environment could support increased demand for Canadian energy over time.

Bottom Line: In this environment, while energy has benefited from short-term supply disruptions, the bigger opportunity likely lies ahead in the broader market. As higher oil prices incentivize more supply and inflation pressures ease over time, we would expect a shift toward sectors that benefit from lower costs and potentially lower interest rates—such as consumer, industrial, and rate-sensitive areas—along with continued support from technology-driven productivity gains. The key is not to chase what’s already moved, but to position for a transition from narrow, energy-led strength to broader market participation.