Oil surges on Iran tensions as energy stocks rally
Exxon and Chevron climb as Shell CEO warns Strait of Hormuz disruption could cripple global fuel supplies
Oil prices surged and energy stocks rallied on Tuesday as escalating tensions between Iran and Israel renewed geopolitical risk premiums in crude markets, with Shell's chief executive warning that a conflict could cripple global fuel supplies.
Exxon Mobil shares climbed 3.7% to $167.14, while Chevron advanced 1.8% to $208.89 in afternoon trading, leading gains among major integrated oil companies. The United States Oil Fund, which tracks West Texas Intermediate crude futures, also traded higher as investors priced in the threat of supply disruptions in the Middle East.
Speaking at an energy conference in Tokyo, Shell CEO Wael Sawan said the Israel-Iran crisis is "very concerning" for global energy security, highlighting the strategic importance of the Strait of Hormuz, through which approximately a quarter of the world's oil trade flows. "If this artery is blocked, for whatever reason, it has a huge impact on global trade," Sawan said, according to reports from The Guardian.
The warning comes as crude prices have been swinging in response to escalating hostilities in the region, with Brent crude rising towards $77 a barrel during recent trading sessions. The conflict threatens to disrupt shipping through the Strait of Hormuz, a narrow waterway between Iran and Oman that handles roughly 20% of global petroleum consumption.
Shell, one of the world's largest oil and natural gas traders, has contingency plans in place should the conflict disrupt flows from the region, according to company statements. The energy giant has already been navigating operational challenges, including interference in navigation signals in and around the Gulf that has led to cautious rerouting and shipping delays.
The rising oil prices are rippling through other sectors of the economy. United Airlines warned that it may need to implement fare increases of up to 20% to cope with the surge in fuel costs, highlighting the broader inflationary implications of sustained higher energy prices.
The energy sector's rally marks a sharp reversal from recent weeks, when oil prices had been declining amid concerns about global demand growth. The re-emergence of geopolitical risk as a market driver has caught some traders off guard, with Benzinga reporting that the escalation in U.S.-Israel-Iran tensions is pushing more geopolitical risk back into crude prices.
Analysts are watching closely for any signs that Iran or its proxies might attempt to close the Strait of Hormuz, a move that would likely send oil prices spiraling higher and could severely disrupt global economic growth. Even the threat of closure typically adds a significant risk premium to oil prices, as shipping insurance costs rise and traders hedge against potential supply shortages.
"Trump is playing markets like a fiddle," according to one market analyst, noting unusually timed futures flows ahead of the president's recent Iran de-escalation post that sparked sharp questions about market positioning ahead of geopolitical developments.
Investors are bracing for continued volatility in energy markets as the situation evolves, with many looking to the oil majors as beneficiaries of higher crude prices. Exxon and Chevron, both with substantial upstream production portfolios, stand to see improved earnings if elevated oil prices persist, though the companies also face operational risks from any escalation in Middle East hostilities.