The Iran war isn’t just making it costlier to fill up the tank of your car at the pump, it may also be making the cost of heating your home go up this fall.
Heating oil is similar in composition to diesel fuel, the price of which has hit records above US$6.50 per gallon following disruptions in the Middle East caused by the Iran war. The Trump administration also blames high prices on Ukrainian attacks on refineries in Russia.
Canada, too, has been hit with higher heating oil prices.
Since the start of the war, heating oil prices have jumped 42 per cent in most of the country. Average retail price for furnace oil in Canada was just under $2.50 per litre on Tuesday, according to Natural Resources Canada, a sharp jump from the $1.76 just before the Iran war began and almost a full dollar higher than the $1.56 per litre seen in January.
There is “no question” that the higher prices are “linked to the war,” said Behrouz Bakhtiari, a supply chain expert and professor at McMaster University’s DeGroot School of Business.
“There are other aspects also. There may be some panic in the market. There may lower inventories, but really the link is directly tied to the Strait of Hormuz,” he said.
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Adding to the pressure is the fact that many refineries close down temporarily for the fall, Bakhtiari said.
While in most years it is a routine shutdown, this year it could add pressure to prices.
“This year, because there was already shortage in the market, those maintenance schedules would add to the pain,” he said.
The Trump administration is offering to loan up to nearly a third of the one-million-barrel U.S. emergency heating oil reserve, the Department of Energy said on Wednesday, in a bid to tame surging prices.
U.S. Energy Secretary Chris Wright said the administration was “committed to doing everything in our power to lower energy costs.” The department said there would be a competitive bidding process for the loans for both fuel retailers and terminal holders to allow the fuel to flow into areas facing shortages.
The U.S. has only tapped the Northeast Home Heating Oil Reserve once since Hurricane Sandy struck the region in 2012. The emergency stockpile is held at sites in New Jersey, Connecticut, Massachusetts and Maine.
About one-third of New England homes use heating oil, including about half of homes in Maine.
In Canada, the pain is likely to be concentrated in Atlantic Canada, Bakhtiari said. As of 2022, 305,900 homes in Atlantic Canada used oil to heat their homes, according to Environment and Climate Change Canada.
Earlier this month, Prime Minister Mark Carney announced that the federal government will launch a new heat pump rebate program early next year as part of ongoing work over recent years to get consumers onto alternative heating options, but program details haven’t been finalized.
Ottawa is in the process of winding down an existing program to subsidize purchases of heat pumps for homes heated with oil.
Last month, Finance Minister Francois-Phillipe Champagne said the current pause on the federal excise tax on fuel would be extended until February.
For Atlantic Canada with its long winters, this would mean that heating oil costs could rise further in March.
A single cold snap could mean an additional $600-$700 per household for that period, Bakhtiari estimates.
Higher heating oil prices, along with the end of the fuel tax holiday, would mean “$3,000 to $4,000 dollars added to the cost of the energy bill,” he said.
In his announcement, Carney announced $2 billion in spending to retrofit one million homes across Canada with heat pumps, which he said would mean $1,400 in annual savings on energy bills for households heating with oil, propane and electric resistance.
–with files from Reuters and Canadian Press
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