Macro Report – September 2025
Global markets are entering a decisive capital rotation. For more than a decade, institutional portfolios were dominated by technology and growth equities, underpinned by zero interest rates, subdued inflation, and cheap energy. That era is over.
Persistent inflation, geopolitical realignment, and fiscal expansion are pushing investors back into real assets, such as commodities, infrastructure, and energy, that provide scarcity, durability, and cash flow.
Oil is emerging as the central beneficiary of this shift. A decade of underinvestment, fragile supply chains, inelastic infrastructure-driven demand, and increasing capital inflows into commodities position oil to reprice dramatically. By 2026, oil is poised not just to outperform other assets but to become the anchor of the next capital rotation cycle, with prices plausibly reaching $200 per barrel.
The implications go beyond markets. Divergent policy approaches between the United States under President Trump and Canada under Prime Minister Mark Carney will shape regional winners and losers. Within Canada, $200 oil may amplify Alberta’s economic autonomy, especially as AI/data centre investment compounds its energy strength, further deepening political fractures with Ottawa’s climate-first agenda.
Capital Rotation: From Growth to Real Assets
Capital rotation describes the reallocation of institutional flows away from the dominant trade of one era into the assets that define the next.
- In the 1970s, stagflation and geopolitical shocks drove investors into commodities and hard assets.
- In the 2000s, China’s industrialization triggered a commodity super-cycle, while the U.S. housing bubble redirected flows into credit.
- In the 2010s, ultra-low rates and quantitative easing pulled capital into technology, growth equities, and private credit.
Today, the conditions for another rotation are clear:
- Inflation is sticky, reinforced by fiscal deficits, commodity constraints, and geopolitical instability.
- Real yields are rising, undermining the growth model reliant on cheap liquidity.
- Portfolios are underweight commodities, leaving institutional investors structurally misaligned with the new environment.
Oil is uniquely positioned in this cycle. It is both a physical input that drives inflation and a financial hedge against it. As capital rotates, oil becomes the anchor asset of the new regime, much as technology was for the past decade.
Historical Precedents: Learning from 1970’s and 2000’s Cycles
Two historical cycles illustrate how oil scarcity and structural demand shocks can reshape both markets and geopolitics:
1970’s Oil Shock
- Drivers: OPEC embargoes, Middle East conflicts, and underinvestment in conventional fields.
- Market impact: Oil prices quadrupled between 1973 – 1974 and again in 1979, causing stagflation, soaring inflation, and economic recessions.
- Policy response: Central banks responded with tight monetary policy, while governments launched strategic reserves and energy diversification programs.
- Macro lessons: Supply shocks in concentrated markets can propagate systemic inflation, forcing broad capital rotation from equities and bonds into commodities and hard assets.
2000’s China-Led Commodity Boom
- Drivers: Rapid urbanization and industrialization in China, paired with insufficient global upstream capacity.
- Market impact: Oil surged from $30 to $140 per barrel between 2003–2008. Metals and industrial commodities followed, creating a global super-cycle.
- Policy response: Countries with commodity exposure benefited fiscally; emerging markets attracted capital, while advanced economies faced higher input costs.
- Macro lessons: Structural demand from infrastructure and industrialization can create persistent, inelastic pressure on global commodities, often underestimated in conventional demand curves.
Implications for 2026: The combination of fragile supply, infrastructure-driven inelastic demand, and capital rotation mirrors the structural features of these historical cycles, increasing the probability of significant oil repricing.
Why Oil in 2026?
Several forces converge to make 2026 the critical year for oil:
- Supply fragility. Upstream underinvestment since 2014 has left global supply constrained. ESG mandates have deterred financing for long-cycle projects, while OPEC+ spare capacity is thin.
- Demand resilience. Despite forecasts of “peak demand”, consumption continues to rise. Emerging markets are adding vehicles, aircraft, and industrial capacity. Petrochemicals, logistics, and aviation remain energy-intensive.
- Financial allocation. Sovereign wealth funds, pensions, and hedge funds are increasing commodity exposure. Oil futures, ETFs, and energy-linked instruments are regaining a structural role in portfolios.
- Macro alignment. Oil offers protection against inflation and fiscal stress. As governments expand spending, investors turn to oil as both shield and opportunity.
By 2026, these forces will combine to reprice oil not simply as a cyclical commodity but as the core asset of global capital rotation.
Infrastructure Super-cycle: The Hidden Demand Driver
One underappreciated factor is the scale of national infrastructure spending now underway. Unlike consumer demand, infrastructure-driven consumption is inelastic once projects are announced. Steel, cement, plastics, logistics, and machinery all require hydrocarbons as inputs or fuel.
Key examples include:
- United States. The $1.2 trillion Infrastructure Investment and Jobs Act is only beginning to translate into large-scale projects—roads, bridges, ports, and grid upgrades—all dependent on diesel, asphalt, and petrochemicals.
- China. Despite slower GDP growth, Beijing continues to advance its “new infrastructure” agenda, including rail, ports, urban transit, and industrial upgrading, alongside a recalibrated Belt & Road initiative.
- India. Rapid urbanization and roadbuilding, metro expansions, and industrial corridors are locking in incremental oil demand.
- Middle East. Saudi Arabia’s Vision 2030 mega-projects, including NEOM, require sustained energy-intensive construction.
- Europe. EU Green Deal initiatives paradoxically require large-scale use of hydrocarbons in construction, retrofitting, and heavy industry.
The critical point: these projects are not fully reflected in current demand curves. Forecasts typically extrapolate consumer and industrial trends but underweight state-led infrastructure cycles. This hidden, inelastic demand increases the likelihood of an oil price overshoot in 2026.
Geopolitical Catalysts
Geopolitics remain the accelerant:
- Middle East volatility. Iran–Israel tensions, proxy conflicts, and fragile Gulf stability put the Strait of Hormuz at risk.
- Russia and sanctions. Moscow relies on shadow fleets and opaque trading structures; tighter enforcement could abruptly tighten supply.
- China’s stockpiling. Beijing is deliberately adding to strategic reserves, sustaining demand regardless of short-term price fluctuations.
- U.S. protectionism. Trump’s tariffs and reshoring efforts disrupt trade flows, reinforcing reliance on domestic hydrocarbon production.
Each of these flashpoints adds layers of scarcity premium, magnifying the impact of underlying supply and demand dynamics.
Carney vs. Trump: Divergent Policy Paths
The most striking divergence in a $200 oil world lies in political leadership.
Trump’s America.
Hydrocarbons are framed as national strength. Deregulation, accelerated permitting, and protectionist tariffs align policy with expansion. The U.S. positions itself as the reliable supplier of last resort, attracting both capital flows and strategic partnerships.
Carney’s Canada.
By contrast, Carney approaches oil through the lens of transition, not expansion. As former head of the global climate-finance alliance GFANZ and author of Value(s), Carney has consistently argued that finance must be mobilized to achieve net zero. Under his leadership, Ottawa would:
- Expand royalties and carbon pricing to capture windfall revenues.
- Redirect fiscal surpluses toward green subsidies and climate diplomacy.
- Reinforce ESG mandates across Canadian banks and pensions, constraining oil-sector financing.
The result: U.S. energy markets expand into the rotation, while Canadian energy markets remain structurally constrained by climate-first policy.
Domestic Tensions: Alberta, Independence, and AI
For Canada, $200 oil would not be unifying. Instead, it risks amplifying domestic political fractures.
- Fiscal conflict. Alberta’s surging royalties would contrast sharply with Ottawa’s efforts to divert wealth into transition programs.
- Capital restrictions. Producers would remain constrained by ESG mandates despite record profitability.
- Independence momentum. Alberta’s long-standing grievances could gain new momentum, as citizens argue that Ottawa is confiscating oil wealth while undermining their core industry.
At the same time, Alberta is becoming a hub for AI and data centre development, driven by abundant natural gas, relatively cheap power, and land availability. These projects reinforce Alberta’s economic strength outside of Ottawa’s policy framework, deepening its integration into North American energy and technology supply chains.
The dual drivers of oil wealth and AI-driven energy demand strengthen Alberta’s autonomy and sharpen the contrast with Carney’s climate-first vision. For Canada, the risk is systemic: rather than leveraging oil windfalls to unify the federation, Ottawa’s policies could fracture it.
The $200 Oil Scenario
If oil surges to $200 in 2026, the consequences will be far-reaching:
- Global inflation. CPI would accelerate worldwide, forcing renewed central bank tightening and straining sovereign debt markets.
- Trade balances. Exporters consolidate fiscal surpluses, while importers face structural deficits.
- Currencies. Petrocurrencies strengthen, euro and yen weaken.
- Capital markets. Oil becomes the financial hedge of choice, drawing portfolio flows away from growth sectors and reinforcing its role as anchor of the new cycle.
With underinvestment, infrastructure super-cycles, geopolitical volatility, and capital rotation aligned, $200 oil is increasingly plausible as the central case for 2026.
Conclusion
Capital rotation is underway, and oil is positioned to become the defining asset of the next cycle. Historical precedent from the 1970s oil shock and the 2000s China-led super-cycle demonstrates how supply constraints and structural demand shocks can produce sustained price spikes, inflationary pressure, and geopolitical realignments.
In 2026, these dynamics converge: fragile supply, inelastic infrastructure demand, AI/data centre growth, and capital rotation all reinforce higher oil prices. Divergent North American policies amplify asymmetry: Trump’s U.S. embraces expansion, while Carney’s Canada channels oil wealth into net zero, potentially fueling Alberta’s economic and political autonomy.
Oil is once again the anchor of global capital markets and a potential fault line in national politics
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