Iran Conflict, Energy Markets and Canadian Equities: How FGP Is Navigating Volatility

Intro: 00:00
From Foyston, Gordon and Payne, this is the Foyston for Thought Podcast, bringing context and perspective to the issues shaping markets and portfolios.

Gabriel Lopezpineda: 00:09
Welcome to episode one of the Foyston for Thought Podcast, recorded on March 17th, 2026. I’m Gabriel Lopezpineda, Head of Institutional at FGP Investments. Today I’m joined by Zubaida Mirza, Vice President and Senior Research Analyst, Canadian Equities. Zeba, thanks for making the time.

Zubaida Mirza: 00:27
Always a pleasure, Gabe.

Gabriel Lopezpineda: 00:28
There’s obviously a lot happening in markets right now. The conflict involving Iran has shaken energy markets, and that’s spilled over into equity markets around the world. A lot of clients are asking the same question. What does this mean for my portfolio? So today I want to keep this simple and practical. Zeba, maybe start there. What’s the big picture?

Zubaida Mirza: 00:48
So the big picture, Gabe, is geopolitical shocks always they create uncertainty, and the market hates uncertainty. In this case, because the conflict was centered in such an important energy producing area, the first and largest transmission channel has been energy prices. And as you know, energy prices flow through to everything. So this is going to impact not only oil and gas stocks, but also inflation expectations, interest rates, corporate profits, consumer confidence, the whole market feels it.

Gabriel Lopezpineda: 01:20
So when clients see headlines and big market swings, that reaction is understandable.

Zubaida Mirza: 01:24
Oh, it’s completely understandable. These are emotional moments for investors, but they are also the moments where your portfolio construction really matters. And you find out very quickly if your diversification is working.

Gabriel Lopezpineda: 01:36
And in our Canadian equity portfolio, one of the key points has been that our energy holdings have helped.

Zubaida Mirza: 01:42
Oh, they have. Our energy holdings have appreciated value and they provide meaningful protection during this time. And that’s important because when you get stress in one part of the market, you want something else in the portfolio to offset it. For us, that’s been energy.

Gabriel Lopezpineda: 01:58
And that’s uh that wasn’t a tactical trade because of this conflict.

Zubaida Mirza: 02:01
No, no, no, no. So not at all. That’s a really important point. We didn’t wake up one morning and decide to own a lot more energy, so just because of a geopolitical event. Our overweight in energy comes from our long-held belief that this is not a sunset industry. And demand for hydrocarbons will remain in place for decades longer than most Bay Street analysts expect. And this is a very differentiated view. So even at the start of the year, most analysts on the street were concerned about a 2 million barrel barrel a day inventory increase. But when we looked at the data, what we could see is that market that markets were tighter than most suspected. In fact, OPEC Plus had been able to add 2 million barrels of a day of supply. So using up a lot of their spare capacity without causing any increases in OECD inventories. So we could see the markets were tight to begin with. And then within this cyclical space, we own what we believe to be the highest quality companies. And who is that? So those are companies with long life assets, with low decline rates, with management teams which are strong, balance sheets in good shape, solid power of earning, and most importantly, valuations which are attractive. So yes, the recent move has helped, but the original reason we own the companies was fundamental, not speculative.

Gabriel Lopezpineda: 03:24
That’s such an important distinction. This isn’t about trying to predict the next headline, it’s about owning strong businesses before the headlines arrive.

Zubaida Mirza: 03:32
Exactly. If you build a portfolio around your quality and valuation discipline, sometimes you’re rewarded when unexpected shocks happen. Not because you predicted that particular shock, but because you own resilient companies at good prices.

Gabriel Lopezpineda: 03:46
Okay, let’s talk about the conflict itself. One of the themes you would like to communicate to our client is that the situation is difficult to predict, but your base case is still that energy prices should eventually normalize. Walk us through that.

Zubaida Mirza: 04:01
Sure. Happy to do that. The honest answer is no one can forecast geopolitical events with precision, Gabe. And anyone who sounds overly confident is probably kidding themselves. So our view is that one of the reasons Iran has attacked regional infrastructure and is threatening the Strait of Hormuz is to raise the cost of the war for the global economy, to force things to come to a quicker end. Now, so recall the Strait of Hormuz is a vital transit route. Every day, 20 million barrels a day of oil and product and 11 billion cubic feet of LNG flow through it. That is 20% of global oil supply and LNG supply. That is huge. A disruption of flows of this magnitude has a substantial cost on the global economy. And that is why we think the likelihood of a protracted conflict would be difficult. And that’s our base case.

Gabriel Lopezpineda: 04:53
But there’s also a wild card here.

Zubaida Mirza: 04:55
Yes, duration is important. The longer the situation persists, the greater the chance that energy prices reset higher for longer. The market can handle short-term disruptions, and we’re already starting to see policy responses around the world. The International Energy Agency has announced coordinated 400 million barrel a day to release from strategic petroleum reserves. Emerging market countries are discussing managed measures to control demand, for example, placing a cap on the amount of retail fuel sales. But the bottom line is the global economy does not have the wherewithal to replace a disruption of this size and scale, especially if it becomes protracted. Because then you will start to see all the second-order effects. We’re already starting to see the supply being tightened, shipping disruptions, higher insurance costs, but then we will also start to see higher inflation expectations, higher interest rate expectations. Global GDP growth itself may be impacted.

Gabriel Lopezpineda: 05:55
So it’s not just war equals higher oil. It’s also about how long the system stays disrupted.

Zubaida Mirza: 06:01
That’s exactly right. Duration is really going to matter.

Gabriel Lopezpineda: 06:05
And you look at the Houthi attacks in the Red Sea between 2023 and 2025 as a useful comparison. Not identical, but relevant. So, right.

Zubaida Mirza: 06:14
It’s not a perfect comparison, but it’s helpful because it reminds us that even after a crisis starts to fade from headlines, energy and shipping patterns don’t step back immediately. It can take time for traffic, for confidence, for normal commercial behavior to return. So that’s why we say this is the wild card. Even after these active hostilities end, the market is going to take some time to get back to business as usual. In fact, to be fair, we’ve lived through a long period where there was no risk premium at all in energy markets. US shale production growth had created a sense of security regarding supply in global markets. But shale production was never meant to be a long devolution. Shale, by definition, is a burst of production. And this shale production growth in the US is now slowing. So as the market adapts to this new reality, we would not be surprised to see a reintroduction of risk premium in oil prices.

Gabriel Lopezpineda: 07:11
All right, let’s uh bring this back to portfolio positioning. We have an overweighted energy relative to the index with a focus on producers. Why producers in particular?

Zubaida Mirza: 07:21
Well, if you’re a long-time client or partner, you know that we at Foyston already think that Canada has some very unique oil and gas assets. So if I could just explain oil and gas production, it’s a treadmill industry. The minute you drill a well, it starts to decline. The US Permian Basin has a decline rate on average of about close to 35%. That means they need to replace a third of production every year just to stay flat. By contrast, Canadian production, so by and large, comes from the oil sands, which is effectively zero to very low production declines. Also, in a global industry where reserve lives tend to vary between five years to maybe 11 years, our Canadian companies offer reserve lives of 30 to 40 years. These are huge structural advantages. In addition, we look for management teams which have a track record of value creation. What does that mean? That means they operate their assets extremely well. They’re systematically reducing OPEX and they focus on keeping their balance sheets in order. These management teams know how to create shareholder value across a range of commodity prices.

Gabriel Lopezpineda: 08:32
And that phrase across a range of commodity prices is important because it suggests this isn’t just a call and oil staying high.

Zubaida Mirza: 08:40
Exactly. We like these companies not only when prices spike, but also because all of them actually can perform even when commodity prices move back towards a normal range. That is important. We want to own businesses which can have earnings, pay dividends, do stock buybacks, and keep their balance sheets in good order without heroic oil price assumptions.

Gabriel Lopezpineda: 09:04
So, in a sense, higher prices can be a bonus, but they’re not the whole thesis.

Zubaida Mirza: 09:08
We’re viewing any excess cash flows as windfall cash flows for the companies.

Gabriel Lopezpineda: 09:13
Another point that I think will resonate with clients is performance during the first stretch of this period. From March 2nd to March 13th, the first 10 business days after the war started, the FGP Canadian Equity Fund outperformed its benchmark, the S&P TSX composite index, by about 370 basis points.

Zubaida Mirza: 09:30
Nice to see, isn’t it, Gabe? And while we never want to overstate short-term performance, it provides evidence that the portfolio acted exactly the way we would hope in a challenging environment. When markets were under pressure, our energy exposure helped cushion the portfolio. And that is exactly the role that diversification is supposed to play.

Gabriel Lopezpineda: 09:50
I guess you’re uh being careful not to declare victory based on the last two weeks.

Zubaida Mirza: 09:54
Exactly. So we don’t build portfolios for just 10 business days. But when a portfolio is tested, it’s nice to see the design is functioning as intended.

Gabriel Lopezpineda: 10:04
Let’s widen the lens a bit. One of your broader messages is that our overall portfolio positioning still reflects FGP’s long-standing philosophy. Investing in high-quality businesses that pay dividends and trade and attract devaluations. Why does that matter, especially in moments like this?

Zubaida Mirza: 10:21
Well, because macro shocks are unpredictable. You can’t build a successful long-term process around reacting to every surprise. But what you can do is own a business with resilience. So companies with pricing power, balance sheets which are strong, with cash flows that are recurring, with good with good governance and management teams that allocate capital sensibly. And you know what? If you buy the companies at attractive evaluations, you have your downside protection as well.

Gabriel Lopezpineda: 10:50
So quality and valuation are not just nice ideas in calm markets. They’re part of the shock absorber.

Zubaida Mirza: 10:56
That’s right. They matter even more in periods of stress.

Gabriel Lopezpineda: 10:59
And this philosophy has been tested before.

Zubaida Mirza: 11:01
Oh, it has. We’ve been through the global financial crisis, we’ve been through COVID-19, the pandemic, we’ve been through sharp increases in interest rates. We have seen the war in Ukraine and now this Gulf conflict. Every stress event looks slightly different on the surface, but the lessons you take away are the same. Your investing discipline matters. Owning high-quality businesses at good prices, now that’s a durable approach.

Gabriel Lopezpineda: 11:29
I also want to touch on your current level of caution because, on one hand, energy has helped. On the other hand, markets have been very strong over the past few years. Evaluations in many areas have expanded materially. So you’re not exactly waving an all-clear flag.

Zubaida Mirza: 11:45
No, we’re not. We are somewhat cautious. They are parts of the market where valuations look stretched, and that gives room for disappointment. So the one reason we’ve still maintained overweights in sectors like energy, in communications, financials, these are areas where we still see earnings growth potential and the valuations we think are still attractive compared to the market.

Gabriel Lopezpineda: 12:05
That feels very FGP. Stay constructive, but stay disciplined.

Zubaida Mirza: 12:09
Well, that’s the balance we’re trying to strike.

Gabriel Lopezpineda: 12:12
Before we wrap it up, let’s make this very practical. If a client is listening right now and is understandably uneasy, what would you want them to take away from the discussion?

Zubaida Mirza: 12:21
Okay, we’d say like three things. So number one, I tell you, times like this are unsettling and your reaction is entirely reasonable. So number two, I’d want you to, I’d want you to understand our Canadian equity portfolio entered this time with exposure to quality energy companies, and they have helped protect us during this time. And third thing I would want you to take away is that we’re not going to change our philosophy just because of the headlines. We continue to apply the same discipline we always have. We will add to positions that have that have lagged, but have still have strong fundamentals, and we’ll trim the positions as they become fairly valued.

Gabriel Lopezpineda: 12:59
So the process continues?

Zubaida Mirza: 13:00
Very much so. Calmly, thoughtfully, and with a long-term perspective.

Gabriel Lopezpineda: 13:05
And maybe one last question, Zeba. In a sentence or two, why are you still confident in the portfolio from here?

Zubaida Mirza: 13:12
Well, Gabe, because we believe the portfolio offers strong businesses at discounts to the broad market. And that combination offers a downside protection when uncertainty tends to rise. We can’t control the geopolitics, but what we can control is the quality, the valuation, and diversification of what we own.

Gabriel Lopezpineda: 13:32
That’s a great place to end. Zeba, thanks so much for joining me on FGP’s first podcast.

Zubaida Mirza: 13:37
Oh, you’re welcome, Gabe.

Gabriel Lopezpineda: 13:38
And thank you to our listeners. I’m Gabriel Lopezpineda, and so along for now.

Intro: 13:42
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