Higher oil prices could significantly reduce Alberta’s budget deficit

When Alberta Finance Minister Nate Horner released the annual budget more than a month ago, he warned of “difficult decisions” ahead, painting a bleak picture of the province’s fiscal health.

But in an environment where utility income dictates budgets, a lot can happen in a month – and it did.

Enduring prolonged depressed oil prices, the government had budgeted a $4.1-billion deficit for the current fiscal year and more than doubled that deficit, at $9.4-billion, for the next.

When the fiscal year ends next Tuesday, that $4.1-billion deficit could be cut in half, said Trevor Tombe, an economics professor at the University of Calgary.

Dr. Tombe said: “It’s been a big change in Alberta’s financial situation.

That change can be linked to the sudden rise in oil prices, caused by the war in the Middle East and the closure of the Strait of Hormuz by Iran, which is an important route for the export of energy to the world market.

Alberta Budget 2026: Province predicts $9.37-billion deficit, spending expected to hit record

No other provincial government cares about oil prices as much as Alberta: Every $1 change in the price of oil per barrel has an impact of about $700-million on the province’s bottom line. Since the US and Israel attacked Iran on Feb. 28 – two days after Alberta set its budget – West Texas Intermediate oil prices rose to an average of US$90 a barrel after hovering around US$60 for most of the past 12 months, Dr. Tombe said.

Alberta’s rapidly changing finances highlight how the province stands out from its peers as each grapples with unpredictable economic conditions boosted last year by U.S. President Donald Trump’s trade war and tax threats.

On Thursday, Ontario was the latest province to announce a red-ink budget, citing a sluggish economy hampered by US tariffs, creating a $13.8-billion deficit for next year. BC has also blamed its record $13.3-billion deficit for the tariff chaos.

Alberta didn’t have a single bill to blame when it reported its deficit last month. It has the lowest US tax exposure of all states, based on its budget, with an estimated tax rate of 1 to 2 percent.

Alberta is also the only jurisdiction — save for the federal government, which collects corporate income taxes — to benefit significantly from higher oil prices.

Dr. Tombe said his numbers show Alberta has posted a daily surplus of $40-million to $60-million since the war began, based on daily crude oil prices. If Thursday’s trading performance on West Texas Futures is correct, he said Alberta will reduce its projected $9.4-billion deficit next year to about $4-billion.

“Greatness of hearing [in Alberta] it is bigger than other places,” said Dr. Tombe.

Marisa Breeze, Mr. Horner’s press secretary, said in a statement that the province expects a reduced deficit for the current year, but not much. The province’s annual report will be published at the end of June.

Alberta has not changed its expectations for the next fiscal year, he wrote. The government’s $9.4-billion deficit is driven by the US $60 WTI forecast for 2026-27.

“We don’t plan based on short-term fluctuations in the market,” he said.

Rising oil prices and changing financial conditions are nothing new to Alberta. The latest budget sparked renewed discussion about implementing a provincial sales tax as an option to relieve Alberta of its dependence on utility revenue.

Rising Alberta prices from Trans Mountain expansion highlight need for new pipelines, think tank says

Trevor Harrison, a retired professor of political science at the University of Lethbridge, said Premier Danielle Smith’s UCP government may be allowed to sideline discussions about stabilizing its revenue streams if oil prices remain high.

He said: “It will disappear the same way it always disappears when the money starts coming in. The government will have no incentive to bring in the tax.

Ms. Smith pointed to the sovereign wealth fund – Alberta’s Heritage Savings Trust Fund – as a future source of stability in her efforts to grow it to $250-billion by 2050. The fund was valued at about $32-billion at the end of last year, but the province said last month it would not make any contributions next year.

Alberta could face another fiscal squeeze if energy prices remain high. Under the province’s Fuel Tax Relief Program, the gas tax of 13 cents per liter could be raised in July if the average WTI price exceeds US$90 a barrel for the 20 trading days to the end of next quarter, depriving Alberta of that revenue source.

The province may also face pressure to provide cash transfers to residents if energy prices cause inflation, Dr. Tombe said. But either situation can have a small impact rather than a large flow of resource income.

“[Alberta] he would have been a big winner here,” he said.