What Do Rising Middle East Tensions Mean for Oil?

Tensions are heating up and further attacks are being launched in the Middle East, in particular Iran, Israel, and nearby countries. As a result of this, given Iran is a major player in the global oil market (responsible for 4% of the world’s production), much could be at risk if Iran’s oil infrastructure becomes a target.

In response to events, U.S. crude futures rose on Thursday and Friday, and some experts and organizations say that they can rise even further should conflict intensify.

WTI futures over the past month, courtesy TradingView

Typically, rising oil prices will mean rising oil stocks. Whether the conflict breaks into all-out war or not, the rising tensions are not going anywhere, leaving some investors cautious and oil prices likely rising. This is expected to lead to rising oil stock prices.

Some stocks that could be affected include:

• Exxon Mobil Corp (NYSE: XOM), which increased about 8% in the last week. However, investors should know the surge might not be permanent, given concern over a forecast earnings decline.
• Shell (NYSE: SHEL) are currently trading higher after the company issued volume outlook for Q3. The stock is now being considered a short term pick by Citi, though it has recently been experiencing struggles due to oversupply, an issue which may be expected to last until 2025.
• BP (NYSE: BP), which is up about 5% in the past week, currently has a maximum 1-year forecast of $45, which, if achieved, would represent over 35% price increase. It also has one of the highest Zen Scores (our shorthand for the fundamentals of a stock) among major oil companies.  

This is only a sampling of affected companies. Nonetheless, what’s clear among all the analysts we’ve reviewed is that this is going to affect the entire oil sector.

In terms of further factors that could affect oil prices and oil stock prices things to look out for:

• If the conflict escalates further to the degree that oil production facilities in Iran become targets and Iran has greater concerns than oil production, oil prices could rise further.
• Operations relating to the Strait of Hormuz are affected, leading to even further price increases. This is unlikely, but will have even further-reaching effects.
• In the long term, increased instability in the region could lead to a need for increased production elsewhere, such as in the United States. 
• Other large entities could react to the conflict. Sanctions could affect oil prices, OPEC may respond, or other countries could become involved in the conflict (potentially affecting oil production further).
• While the Russo-Ukrainian War and the growing conflict between Iran and Israel are not necessarily strongly linked, it will remain vital to keep watch on Russia’s status, given Russia’s oil reserves and production. The Russo-Ukrainian War severely affected crude oil prices at its outset, and still continues to be a major factor in current prices.

The Takeaway: Above all else, know that the future is uncertain here, especially where geopolitics and international relations are concerned. Conflict between Israel, Iran, and other nations could calm down, or it could get significantly worse. Unknown events could heighten or reserve trends that we’ve seen thus far, though while tensions are high, increased oil prices are likely.

This trend will depend highly on news reports and further information. For that, we recommend WallStreetZen Premium, which, with its unlimited watchlist, can send you updates on selected stocks (oil stocks) that will help you make the best investment decisions for you.

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