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EDMONTON — Alberta is budgeting for years of red ink as it braces for lower oil prices, with the province forecasting a multibillion-dollar deficit based on a benchmark oil price well below what would be needed to balance the books.
The provincial budget projects a deficit of about $9.4 billion in 2026-27, with additional shortfalls expected in the following years, as global oil prices are assumed to average about US$60.50 a barrel next fiscal year, rising gradually to roughly US$67.50 by 2028-29. The province has said oil would need to sit in the mid-US$70 range to avoid a deficit.
Premier Danielle Smith has described the projected shortfall as “significant,” arguing that weaker oil prices and rapid population growth have strained provincial finances. She has said the government will not pursue tax hikes or deep cuts to public services, instead emphasizing spending on health care, education and infrastructure while warning that Alberta’s revenue remains tightly linked to oil markets.
Finance Minister Nate Horner has said lower royalty revenue is the main driver of the deficit, noting that every one-dollar drop in the West Texas Intermediate benchmark can remove hundreds of millions of dollars from the province’s bottom line. The budget points to rising costs tied to population growth and inflationary pressures in construction and public services as additional challenges.
Those projections, however, were tabled just two days before a major geopolitical escalation that could reshape oil market assumptions.
The United States and Israel launched strikes on Iran, an escalation that has intensified fears of supply disruptions in the Middle East. Iranian state media reported the death of Supreme Leader Ayatollah Ali Khamenei, while officials warned of retaliatory action, raising concerns about the security of shipping lanes in the region.
Analysts and economists have focused on the Strait of Hormuz, a narrow waterway between Iran and Oman through which roughly one-fifth of the world’s oil supply passes. Any prolonged disruption there could sharply tighten global supply and push prices higher.
Bloomberg Economics has warned that a full closure of the strait could send oil prices sharply higher, with some projections putting prices near US$108 per barrel in an extreme scenario. Market analysts have suggested that even partial disruptions could create a lasting geopolitical premium on crude prices, while Barclays, a global banking giant based in the United Kingdom, predicts Brent to hit $100/bbl.
The Economist and other analysts have noted that oil markets often react quickly during geopolitical crises, embedding a risk premium as traders price in uncertainty. While prices can spike, longer-term levels tend to depend on whether physical supply is actually removed from the market or shipping routes are restored.
For Alberta, where budget planning is closely tied to commodity prices, sustained increases in crude could improve government revenues compared with current assumptions, though economists caution volatility can cut both ways.
Harvard Media News has reached out to the Government of Alberta but have yet to hear back as they take stock of the situation.
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