What does the war in Iran mean for energy in the medium term?
March 2026, In the Loop
- Key Insights
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- Each day the Strait of Hormuz is closed, oil prices can go higher. The near term is uncertain. We have more conviction in the medium-term outlook for energy.
- Resource nationalism could boost demand if countries build larger stockpiles of critical resources and seek to diversify their supply mix.
- After a decade of production growth, U.S. shale is maturing. A rising cost curve should raise the floor for oil and gas prices in the coming years.
Each day the Strait of Hormuz is closed, oil prices can go higher. The near term is uncertain and evolving quickly. We have more conviction in the medium-term outlook for energy, as rising resource nationalism and weakening U.S. shale oil and gas productivity should create a bullish backdrop over the coming years.
The U.S.-Israeli war on Iran has blocked the Strait of Hormuz, a vital shipping channel responsible for roughly 20% of world oil supplies.
Each day exports are disrupted, the higher oil prices can go.
And when oil flows recover and the market rebalances, this move can unwind.
The range of outcomes is wide right now.
But key changes in energy markets should be bullish for oil and gas stocks over the medium term.
Energy security will likely become even more important for governments and policymakers.
Major oil and gas importers could try to strengthen their economies in two main ways.
- First: Stockpiling more oil and critical natural resources.
- Second: Diversifying their energy mix by pursuing coal, nuclear, and renewable power.
This resource nationalism should boost demand for all forms of energy, supporting higher prices.
As such, it’s also likely to extend to uranium, copper, and rare earth minerals.
Even before the war on Iran, the oil cost curve oil was rising.
The main source of global oil production growth over the past decade—U.S. shale—is maturing.
America isn’t running out of oil and gas. It is running out of the resources that are cheapest to produce.
Without a wave of innovation, shale operators will need to spend more to produce the next barrel as they drill second- and third-tier acreage.
So, what does this mean for global energy markets?
- The marginal cost of producing oil and gas is going up, raising the floor for prices.
- Additional production will be needed to meet demand and to offset the natural declines that happen as fields mature.
What types of companies could benefit from a rising oil cost curve and the need for new sources of production?
Low-cost producers with a long resource life that can offer reliable, secure supply. Parts of Canada’s oil patch score well on these counts.
Select oilfield service companies could also be well positioned, as a greater proportion of future oil growth is likely to come from offshore and international projects.
Like everyone, we’re monitoring the security situation in the Middle East and efforts to restore flows.
We are also deeply focused on opportunities that could be created by higher energy prices in the years to come.
Priyal Maniar, CFA
Investment Analyst
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