Welcome to Episode 3 of Foyston For Thought.
In this episode, recorded on June 8, 2026, Daphne King, Principal, Client Relationship & Business Development Manager at FGP, speaks with Zubaida Mirza, FGP’s Energy analyst, about the ongoing energy crisis caused by the war in Iran. The discussion examines how prolonged disruption through the Strait of Hormuz is reshaping oil markets, inventories, and price expectations. Zeba explains why near-term oil prices could move higher, why long-term assumptions remain anchored in marginal supply costs, and how the crisis may influence global energy policy. The episode also turns to Canada’s energy opportunity, including natural gas, LNG, pipeline egress, and the advantages of Canadian oil sands in a world increasingly focused on secure, reliable supply. Daphne and Zeba close with implications for advisors and investors, highlighting resilience, disciplined capital allocation, and the role of high-quality Canadian energy companies in investor portfolios.
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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.
Speaker 1: 00:08
Welcome to episode three of the Foyston for Thought Podcast, recorded on June 8th, 2026. I’m Daphne King at Foyston, Gordon, and Payne. Today I am joined by Zeba Mirza, Vice President and Senior Research Analyst Canadian Equities. Zeba, thanks for making the time. Oh, it was a pleasure, Daphne. So we last touched base in mid-March on the ongoing Iran war and its impact on the oil markets, and had talked about the historical scale of the crisis. Could you tell us what’s happened since we last talked? What’s new in the world?
Zubaida Mirza: 00:46
So it is June 8th. So we’ve entered into the fourth month of the disruption, which is longer than anybody, certainly longer than I suspected it was going to last. Some select ships are making it through, but by and large, the main bulk of flows from the straits remain significantly disrupted. On the political side of things, I really don’t know if we’re any closer to an end of hostilities than we were like six weeks ago. We’ve been watching for ceasefire since the 6th of May. And we keep hearing of it’s going to happen, but then the drone attacks also keep happening. The missiles also say continue to fly. So I don’t really know how that ends. What I can see on the supply height of things is that this is the largest disruption we have ever seen. So OPEC, they they they tend to publish a monthly like report, and of the latest update, like what we can see is that production from the Gulf countries is down by 12.5 million barrels a day between the months of Feb and April. So if we extrapolate this, that is a billion barrels of production which would otherwise have been available, it’s gone missing. We have seen no increase in any production from Russia. In fact, it’s actually declined as the Ukrainian attacks of infrastructure have increased. We’ve seen no increase in production from the US, which has been holding at close to 13.1 million barrels a day. So any hope of supply production being added from these two things, that hope has been dashed. The oil market, like any commodity market, has to balance, right? So if there is a shortfall in supply, it has to be balanced by demand destruction and by draws of inventory. And we are seeing both of these in full force. So we are seeing actual real demand destruction. So much like how we talk about the K-shaped economy, the impact of energy demand is also uneven across the globe. We’re seeing a lot more demand destruction across the importing world, across Asia, while North America tends to be a lot more resilient. The thing about demand destruction is like COVID did teach us hoping mechanisms. And frankly, the emerging markets have been really proactive when it came to managing this demand. They took schools online, they put in partial work from home, they put in carpool lanes, they made some parts of public transport free. And frankly, the ships which were sailing at the end of the month were still arriving through March. But make no mistake, we have seen demand go down. And on the other side, we’re seeing really sharp draws in inventory. Inventory draws actually can be a little hard to pin down because number one, the data we often see tends to be delayed. Like, for instance, if I look at the OPEC report, the May report will talk about inventory through March. And then often there are huge swaths of the world for which inventory data is just not available. But from everything I’m reading, everything I track, what I can see is that global oil inventories are down by 300 to 500 million barrels in the last like three months. Now, inventories are the global energy system shock absorber. And as they draw down, effectively it means is your global shock absorbers are eroding, which means that we are basically running out of time to reopen the straits.
Speaker 1: 04:11
That’s very interesting, Zeba. But then why aren’t we seeing oil prices higher? Well, Daphne, I have the same question.
Zubaida Mirza: 04:18
So you and I are both struggling with it. You know, honestly, it’s like the market is like in this space between hope and denial. They tend to believe everything we see on Twitter comes true and that the straits are going to magically open up, all the taps, all the taps will open, all the ships are gonna sail. I don’t really believe that. For me, what I would say is I wouldn’t be surprised if February 27th remains the high point of the transits we saw through the traits, probably for the until the until the end of the year. And I say that for a few reasons. So, number one, even if there is a deal like tomorrow, initially all the flows will be in one direction. All the tankers which are in the straits need to clear out. Number two, if there is a deal which leaves Iran in charge of the straits, that could be problematic in its own way. Like we may not see, and we actually saw that in the Red Sea, that it took a long time for flows to resume and they remain below what they were before the incidents happened. Insurance premiums will also have a factor because they are probably going to remain high, and that will probably impact the Western companies. And then eventually, if we look at it from the supply side as to the availability of crude to ship out. So the head of the IEA was talking about this back in April, and he said there have been about 80 attacks on it on infrastructure, and a third of them were pretty bad, like the damage was bad. So it is it’s probably not fair to imagine that we can open the taps on day one and things will be as they were. So I would be surprised. Like so, so when I bring it all together, I look at the amount of draws we’re seeing in inventory, and then I look at the strip oil price, which is 81 bucks for the balance of the year, it’s ridiculous. I don’t think we’re in a new super cycle by any means, right? This is a cyclical industry, it will remain so. And frankly, because the straits are such a critical waterway, like I still think this cannot go on indefinitely. But oil demand growth is about a percent a year, and then we’ve lost a billion barrel supply, and there’s all this inventory drawdowns which we have to replace. So, to me, that oil price does not make a lot of sense. So, if the straits do not open soon, we will see higher oil prices. So, when I look at it, I continue to use $75 to $85 a barrel as my long-term oil price exemption. But I do expect to see a higher oil price in the second half of this year and early in next year.
Speaker 1: 06:53
Sounds all a bit dire. So, why continue to use $75 to $80 a barrel as a long-term oil price?
Zubaida Mirza: 07:02
Well, I’m glad you asked that because so let me explain a little bit about how the commodity works. Like, I generally believe that commodity prices trade around the marginal cost of supply. And in the short term, you can see wild swings in supply or demand. It could be like blockages, it could be drone attacks, it could be recessions. And each of these could cause your inventories to either shrink or they could cause your inventories to blow up, which can create an environment where your price can stay above or below your marginal cost of supply. But this is a cyclical industry. If prices are too high, they curb demand. If prices are too low, they stimulate your demand. Eventually, your prices will get back to the marginal cost of supply. So when we look at it, I like we see $75 a barrel as the long-term, that is the marginal cost of supply, which means that is the price a company needs to be able to meet all its expenses and to get a 9% kind of rate of return, is what they need, right? In this last big decade, US was the marginal applier to the market. And we saw that oil prices average 65 a barrel because it was onshore, say production. So now we’re in that twilight of shale era, effectively. US production is not growing, and like it would be a best case if they’re able to maintain it or just grow it slightly. So which means international production will become the marginal supplier to the market. And for them, the price tends to be higher, which is why we use $75 as our that’s our long-term oil price, then that’s the basis. To this base price, however, we do need to add a risk premium. Like remember, we have never seen a disruption of this scale before. And Iran and Iraq, they fought a war for nearly 10 years and there was no disruption. And because it’s happened now, there is a chance it could happen again, right? Because after all, technology has evolved. Warfare technology has specifically like evolved. These drones are not too expensive and they’re not very high technology to make. You could make them in a basement. So even if we get a deal with whoever the current regime in Iran is, all it needs is a few disgruntled men, a few thousand bucks, and a basement, and they will have new drones with which to attack. So the risk of this happening again is not zero, which is why we use 85 haulers as that upper limit on our long-term basically cost of supply.
Speaker 1: 09:36
So we saw a large move in the last few months as the UAE left OPEC. Is there a risk that they could move to flood the market?
Zubaida Mirza: 09:47
Not really, Daphne. Listen, I understand that there was a lot of excitement, like when the UAE exited OPEC, but it’s not going to be a big deal. Look at it from the UAE’s point of view. I get that they were frustrated. There’s a lot of countries in OPEC which regularly produce below quota. Like think Nigeria, you think Angola, right? But they don’t want to give the quota up. And the UAE is one of those countries which had actually invested in infrastructure. They had spare capacity, but they weren’t able to produce. So the thing is, if you look at flood the market, the comment, ADNOC has been speaking about that. They’ve been talking about increasing capacity to 4.8 million barrels a day. They were at 3.3 at the end of last year. So that is what, a million, a million and a half barrels a day of production to gradually be brought on? That’s not a flood, number one. Number two, if you go back and look at it, the UAE has actually been the most attacked country in the war. And that’s because they were the most allied with US and Israel in prosecuting this war. So will they be irrational in production? No, because they’re going to need a lot of money. And they’re going to need the money to, number one, repair their facilities. And then also they need to build a new pipeline. So they’re talking about expanding their export capacity through Fujairah. And that they think of as a strategic thing because it gives them a bypass to the Strait of Hormones. Is it really going to be effective? I don’t know because Iran has bombed the port of Fujairah before as well, right? So I don’t know how effective. But they have, they’re going to need the money. Plus, if they’re going to rebuild the promise of Dubai, the shining towers, like I think they’re going to be rational on production.
Speaker 1: 11:29
Okay, so let’s pivot and let’s talk about the policy impact of this crisis. How could this derail long-term oil demand?
Zubaida Mirza: 11:39
Okay, so you’re definitely right to think about the policy impact because every time there’s a crisis, there is definitely a policy response, right? And frankly, when we look back, when we see our strategic petroleum like the reserve, our fuel efficient standards, all of these things were developed after the crisis in the 1970s. So this one will also have a policy response. I don’t think it’s going to derail long-term oil demand, though. Maybe we can step back, and I just want to give you some background because energy policy has kind of been all over the place. From 2015 onwards, what we had seen was there was a very sharp acceleration of net zero. And this was mandated by the IEA and it was picked up by all the long-term institutional investors. And what this did was it tended to pivot the normal hierarchy of energy demands. If you’re a country who wants to plan for their energy demands, you generally have three guiding like principles. You want number one, energy to be available. Number two, you want it to be secure and reliable. So I guess you want to think of diverse horses of supply and you want to think of base load availability. Number three, you want it to be affordable. Because although that I tell you is a bit elastic, because whatever the gas prices are, we’re going to heat our homes in the winter, right? So, I mean, we take that on the chin a bit. Since 2015, this typical hierarchy was up-ended by another objective, which was that energy must first and foremost be green. And that actually resulted in some very dubious decisions being made by countries, especially in the EU, like Germany when they shut down nuclear plants, or they did their premature retirements power plants. So don’t get me wrong, as analysts and investors, we absolutely have the obligation to hold companies to a high standard and we push them to reduce their energy intensity constantly. But what the Russia-Ukraine war already had done was it was it had exposed the weakness of this climate first ideology. So we’d already seen a bit of shift in policy. We had gone from uh the energy first or basically climate first, we had gone to a more pragmatic approach. With this particular crisis, I genuinely think what we’re going to see is the development of more domestic supply chains. And by that, what I mean is if a country has coal reserves, they are going to build that plant. Because once that coal plant is up and running, there is no US blockade, there is no strait of hormones issue which is going to impact your power supply within the country. This is going to boost the case for renewables way more than policy ever had. And the reason it’s going to do that is because once that hydro plant is up, that wind plant, that the wind plant is up, the solar-like plant is up, it cannot be disrupted by a third party. This will also probably boost the acceleration to electric cars. Because if you’re at this point and you’re buying a car, you’re not going to switch back to a gasoline engine at this point, right? So definitely this crisis is going to have an impact and it is going to value domestic supply chains for energy.
Speaker 1: 14:58
Very interesting, Zeba. So, again, what does that mean for the long-term oil demand?
Zubaida Mirza: 15:07
So I think the way to think about it is that we’re going to need more of everything. We’re going to need more oil, gas, hydro, and solar. And even though we may not want it, we will even see coal. The other thing to keep in mind is we’ve kind of seen an end to the era of globalization and we’re seeing a lot more regionalization, which means we’ll need greater redundancies overall, I think. Keep in mind, we’re a planet of 8.2 billion individuals. 7 billion of them are in the non-OECD space. And they consume only a fraction of the energy which you and I, who live in the OECD, we use, right? So as these developing economies become richer, they’re going to consume a lot more energy. So overall, global demand for all types of energy will basically rise.
Speaker 1: 15:54
So, Zeba, let’s bring it back to Canada. I understand some big decisions are being made at home. Is that correct?
Zubaida Mirza: 16:02
Oh, yeah. So in April, we actually saw ARC Resources was bought by Shell Canada in a $20 billion transaction. Nice. So this is important because basically we saw Shell buy natural gas at pretty much the bottom of the cycle. And it’s the first time we’ve seen a major purchase of a European basically humming back to buy something in Canada. If you remember, they had all exited all their assets and gone. So this is them basically humming back to Canada. And I was really happy because it increases the chances of Shell effectively going ahead to sanction LNG Canada Phase 2, which will effectively remove that stranded gas discount we get on gas prices in Canada.
Speaker 1: 16:46
Can you give us a two-minute refresher on what’s happening in Canadian natural gas at the moment?
Zubaida Mirza: 16:53
It’s not pretty. So the Canadian natural gas molecule is right now the cheapest gas pump molecule in the world. So it’s kind of worth remembering. In energy land, the narrative can change 180 degrees really fast. So at the start of the year, you wouldn’t find anybody who wasn’t constructive on gas. And the hypothesis was LNG Canada is going to ramp up and it’s going to reconnect the ACO price, which is the Canadian gas price, and it’ll help it move up higher. What actually happened was the LNG Canada that plant took a longer time to ramp up. And with gas markets, you always have the weather. So the Pacific Northwest had an ultra weak winter, what we call like a once in a 20-year event almost, right? And that resulted with Western Canada exporting to BCF of gas less than they were a year ago. So there was gas backed up into Canada, which resulted in gas prices being super weak. Now, analysts always love to extrapolate whatever the most recent trend is. So right now you can’t find anybody who’s constructive on gas. But I can tell you at FOSTERN, we can still see a way to echo prices re-rating. I think the worst of the weakness will be done by June as we move through summer. And eventually we’re going to see a lot more LNG exports capacity off the coast of BC. We’re going to be seeing increased industrial like demand and data centers, when they finally come to Canada, will be another boost to demand. So we remain constructive on the long-term hypothesis for gas.
Speaker 1: 18:23
And on the oil front, it suddenly looks like we will have more egress out of Canada.
Zubaida Mirza: 18:29
I’m pretty hopeful about that. So President Trump announced the Bridger pipeline. That was approved. And I don’t know if you’re aware, this is a 550,000-barrel pipeline. It originates at the border in Montana. And this is the root of the old Keystone XL, the pipeline, which was which was canceled back in 2021. So TC Energy has since spun the liquid assets out. They’re now owned by South Bow. So when the Bridger pipeline, when they got their approval, South Bow did an open season, which basically means they talked to all the clients, did a survey, and they came back and they said, we have sufficient commercial support for their own pipeline, which would connect to Bridger. So an upstream of the Bridger pipeline, that’s the Prairie Connector, that project. So it’s not a done deal yet. They’re still working through their engineering, they’re working through their design. If they do reach a final investment decision, it will be next year. But between them, between the Enbridge mainline optimizations, because there’s a next so there’s a mainline optimization one, two, and three, and then there’s going to be debottlenecking on Trans Mountain. Like it seems like we’re going to have some runway on pipes out of Canada.
Speaker 1: 19:40
So that brings us to our Canadian energy advantage. As energy security becomes a greater global priority, where does Canada fit into this picture? What advantages does Canada offer, both from a resource and a geopolitical perspective?
Zubaida Mirza: 19:58
Well, first, I think we are far away from all global choke points. Any exporter who buys from the Canadian West Coast, be it our oil, our gas, our grain, our supply will be reliable. For Asia specifically, any West Coast exports effectively allows them to bypass the Straits of Malacca, which is the other global choke point. And that is effectively the lifeline for China, for Japan, for South Korea. So that’s a big advantage. Number two, I think we’re seeing clear recognition of the fact that energy is not a sunset industry and that demand for hydrocarbons will remain in place for quite a while. But I think Canada’s truly most enduring advantage is the quality of our assets. Energy is a treadmill industry. You’re constantly trying to fight declines to replace your production. So, and the Canadian oil sands are a uniquely long-duration production asset. So when you look at the Canadian oil sands, you regularly see a reserve life of 25 years or 40 years. If you compare that to the reserve life for most of the big majors, it’s close to nine years. So these are one of the few long-duration assets in the world. And then we have some great management teams here who have proven and they have a track record that they’re able to create value across a cycle.
Speaker 1: 21:18
So let me bring it back to our portfolios. Who do we own?
Zubaida Mirza: 21:22
Well, we like the oil sands. So we own four of the largest oil sand players in Canada. We own Suncor, Imperial Oil, Cenovus, and Canadian Natural. And three of these also are integrated oils, which means they also have a downstream business and a very profitable downstream business at that. So in this crisis we’re going through, we’re seeing higher oil prices, but we’re also seeing higher product prices, which means prices for gasoline and for diesel. So the integrated oils are running on both sides of that trade. And in addition to oil companies, our only real natural gas exposure would be tourmaline. They’re Canada’s largest natural exposure. Gas production company. And A, they’re going to benefit from the higher LNG pricing, which we are seeing. And longer term, as the Canadian gas prices recover, they will benefit of that. So when we think about energy, we always think about valuing our stocks across a range of commodity prices. We don’t predict any of these prices. We certainly didn’t predict this one, but boy, these companies short make a lot of cash when these prices strike. And these windfall cash flows are not worth nothing, right? Because we’re going to exit this time with balance sheets which are pristine and share counts which are much lower, which makes these business models, frankly, even stronger. So that even when commodity prices move back to a normal kind of a range, and they will eventually, these are the businesses who will continue to grow production, they will have earnings, and they will continue to pay dividends sustainably.
Speaker 1: 22:52
So, Zeba, do you have any closing thoughts for advisors and investors? What is the most important takeaway from the current energy environment?
Zubaida Mirza: 23:01
Well, strap in for the ride because it’s going to remain a volatile macro all the way through. So I can tell you reshoring and repowering are inflationary. And then we have the midterm in the US, which is about to come up. It will add to the noise, which is why when we look at building portfolios, we always look for resilience. We look for companies with governance, which is good, with management teams, which have good track records. In a cyclical space like energy, who do we look for? So we look for companies which have advantaged assets, which are strong operators. And yes, they can thrive when things are good, but more importantly, they’re able to survive the downturns and they come out stronger of downturns. So we know markets have been really strong, right, these last few years, and a lot of stocks are close to all-term highs. So we are a bit cautious. So right now, when we look at it, our sector overweights are in energy, in communications, in financials. These are areas where we still see this potential for earnings to grow. There’s revisions which will be positive, which will help, and the valuations they remain attractive compared to the market.
Speaker 1: 24:06
Zeba, thank you so much for participating on today’s podcast, voiced in for thought. I hope that next time we talk, the strait is open and things around the world are less chaotic. Until then, I’m wishing everyone a very happy and healthy summer.
Intro: 24:24
This podcast is intended for informational purposes only and does not constitute legal, tax, security, or investment advice, an opinion regarding the suitability of any investment, nor solicitation of any type. The opinions expressed are as of the date the podcast was recorded and are subject to change without notice. Voice and Gordon and Payne is registered as a portfolio manager in every jurisdiction in Canada, an exempt market dealer in every province in Canada, an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador, and as an investment advisor in the United States. Voice and Gordon and Payne manages a number of pooled funds referred to as FGP pooled funds that are offered through a prospectus exemption to residents of Canada. The values of the FGP pooled funds change frequently. All investment involves risk. Unless otherwise stated, performance is on an annualized basis in Canadian dollars and is gross with management fees. Past performance is not indicative of future performance. This podcast may contain forward looking statements based on reviews, information, and assumptions as of the date of the recording. Listeners are cautioned that actual events may differ significantly. For further information on Foyston Gordon and Payne, please visit our website at www.foiston.com.
Disclosure:
This podcast is intended for informational purposes only and does not constitute legal, tax, security or investment advice, an opinion regarding the suitability of any investment nor a solicitation of any type. The opinions expressed are as at the date the podcast was recorded and are subject to change without notice. Foyston, Gordon & Payne is registered as a Portfolio Manager in every jurisdiction in Canada, an Exempt Market Dealer in every province in Canada, an Investment Fund Manager in Ontario, Quebec and Newfoundland & Labrador, and as an Investment Advisor in the United States. Foyston, Gordon, and Payne manages a number of pooled funds referred to as FGP Pooled Funds that are offered through a prospectus exemption to residents of Canada. The values of the FGP Pooled Funds change frequently. All investment involves risk. Unless otherwise stated, performance is on an annualized basis, in Canadian dollars and is gross of management fees. Past performance is not indicative of future performance. This podcast may contain forward-looking statements based on our views, information and assumptions as of the date of the recording. Listeners are cautioned that actual events may differ significantly. For further information on Foyston, Gordon, & Payne, please visit our website at www.foyston.com.