This post originally appeared in the Toronto Sun.

You don’t need me to tell you that oil prices – and the price of gasoline and other related products – are sky-high, largely thanks to the unsettled situation in the Strait of Hormuz.

You might assume that since this has dragged on since February, it’s already “priced in” and can only go down from here. Well, you would be wrong.

As high as prices are, oil remains underpriced relative to the actual supply available to meet global demand. When the market catches up to that reality, prices won’t just creep higher. They’ll explode.

Why don’t prices reflect reality? For months, officials have assured us that Hormuz would reopen any day now, or that the Khomeinist regime behind the disruption was on the verge of collapse. Neither has happened. But with each optimistic projection, traders have priced in a happy ending. And when it fails to arrive, they seem to forget all about it.

That’s the paper market at work. Futures contracts are being swapped. Hedge funds and other big investors are betting that prices will fall, a practice called “short selling.” Enough of that can drag the headline price down, regardless of how much oil is really available.

The actual physical market — real oil being sold for real delivery — tells a different story. Global stocks have been drawn way down, the gap between the traded price and the cost of real scarcity keeps widening and the absence of normal pre-war flow means pricier fuel until supply catches up with demand. That could take years.

In other words, traders in Manhattan or Toronto, or wherever else, are papering over an actual energy crisis. This might blunt the immediate price shock, but will ultimately mean higher prices for longer, with real recession risk attached.

Turns out, you can’t load a tanker with a futures contract.

Reality is already catching up with the U.S. Strategic Petroleum Reserve (SPR), even if officials won’t say so outright. You can tell by their excuses. The SPR is at its lowest level since 1983. For years, its bottom-of-the-barrel capacity was understood to be roughly 300 million barrels. Now, just as we cross that threshold, officials say the real minimum is more like 70 million – a number that materialized exactly when it became inconvenient to admit the cupboard is bare.

Storage caverns risk degrading under these conditions and the reserve meant to cushion the worst shocks has already been spent shielding the public from high prices, due to COVID-19, rising inflation, Russia’s invasion of Ukraine and now the closure of Hormuz.

In other words, the buffer has already been exhausted.

This is not a recipe for a gentle correction. It’s likely the precursor to a big and rapid price jump, perhaps of 50% or more, hitting us at the pump, at the grocery store and in heating and powering our homes.

None of this needed to happen. Canada should be in a position to supply the oil the world desperately needs right now. Instead, years of net-zero policies and “leave-it-in-the-ground” activism, cheered on by Justin Trudeau and now Mark Carney, have left us dependent on unstable regions and petro-states with dismal human rights records.

Ironically, some of the same people who tried to strangle Canadian oil and gas now tout our export numbers as proof the economy’s in good hands — numbers driven almost entirely by the industry they despise.

It’s not too late to change course. We could repeal the net-zero legislation that is hamstringing our resource sector and begin using our supply to meet global demand. But we’d better start soon because, eventually, reality is going to catch up with the market.