Energy Stocks Soar 40% as Iran War Chokes Global Oil Supply

The war with Iran has triggered the largest oil supply disruption in history, rocketing crude prices above $110 a barrel and making U.S. energy stocks the market’s only haven while battering broader equity and bond markets. Iran’s de facto blockade of the Strait of Hormuz has zapped about 10 million barrels of crude from the global economy each day, sending West Texas Intermediate futures soaring 11 percent to $111.54 a barrel.

"The investment thesis gets stronger as the war goes along," said Dan Pickering, founder of financial firm Pickering Energy Partners. "If the U.S. just leaves, Iran is in charge of the strait. They can turn it off whenever they want.”

The fallout has transformed a flagging industry into a pocket of strength, with the energy grouping being the only one within the S&P 500 to trade in the green over the past month. Shares in major oil companies Chevron and Exxon Mobil just logged their best quarters on record, pushing Exxon’s forward price-to-earnings ratio to recently top that of market darling Nvidia. In contrast, average U.S. gasoline prices rose to $4.11 a gallon, up 13 cents from a week ago, according to AAA data.

Traders are bidding up the price of oil for future delivery, a sign that Wall Street is factoring in a longer-term supply disruption as strategic stockpiles are drawn down and need replenishment. “The futures curve is moving up because every day you go, the physical market gets tighter,” Pickering said.

Strait Blockade Removes 10 Million Barrels Daily

The conflict, which began after American and Israeli strikes against Iran on February 28, escalated as Tehran moved to close the Strait of Hormuz, a chokepoint for nearly 20 percent of daily global oil consumption. The move shocked markets, which had seen Brent crude trading around $70 a barrel before the crisis. The situation remains volatile, with President Trump threatening to bomb Iran’s power plants and bridges by Tuesday if the strait is not reopened, even as his administration holds what he called “deep negotiations” with Tehran.

The geopolitical risk extends across the region. Drone strikes have hit oil-related sites in Kuwait and Bahrain, and Israel reportedly attacked Iran's largest petrochemical complex in Mahshahr. In response to the supply shock, eight OPEC+ members agreed to increase their production target by a modest 206,000 barrels per day, a figure that analysts believe will not be sufficient if the conflict is prolonged.

Shale Slowdown Compounds Supply Fears

Compounding the crisis is the fact that the recent engine of global production growth, the American shale patch, is showing signs of slowing. After U.S. companies pumped out nearly 13.9 million barrels a day in October, the Energy Information Administration estimated that domestic production fell to near 13.2 million barrels a day by January. Analysts say the best land for drilling has already been tapped, and a more consolidated industry is now focused on shareholder returns over new projects.

This slowdown removes a key shock absorber that helped temper price spikes after Russia’s 2022 invasion of Ukraine. “This is the wake-up moment for the market that if you have oil that can be produced in 2040, that’s going to be valuable,” said Tyler Rosenlicht, head of natural resource equities at Cohen & Steers. While some investors are wary of a pullback if the conflict resolves, others see a structural shift. “What we’re seeing now is the broader thematic change in the energy landscape,” said Matt Portillo, head of research at TPH&Co.

This article is for informational purposes only and does not constitute investment advice.