Oil prices are likely to remain elevated even after the ongoing Middle East conflict subsides, driven by concerns around the closure of the Strait of Hormuz. Potential disruptions or restrictions in the strait, one of the world’s most critical oil transit chokepoints, continue to pose supply risks.
Beyond that, damage to key energy infrastructure across the region could take time to repair, limiting production capacity in the near term. This perspective is echoed by analysts mentioned in a CNN article and quoted on Yahoo Finance, who believe that oil prices will likely stay elevated.
According to Goldman Sachs projections, per the above-mentioned article, elevated oil prices may remain in place through 2027. Analysts at the investment bank state that historical supply shocks highlight the risks of oil prices staying above $100 for longer, especially in scenarios marked by extended disruptions and sustained supply losses.
Strait of Hormuz Risks to Fuel Oil Price Surge
The strait remains a vital gateway for Asian economies to meet their energy needs from oil supply from Gulf nations, facilitating the flow of nearly one-fifth of global oil supply. As quoted by CNN and later reported by the above-mentioned Yahoo Finance article, pointing to prolonged uncertainty, a senior Iranian security source stated that the strait will not revert to pre-war conditions.
The post-conflict environment remains highly uncertain, particularly regarding the operational status of the Strait of Hormuz, which could keep risk premiums embedded in oil prices.
Goldman Sachs projects an upward trend in oil prices, noting that prolonged supply disruptions could push Brent above its 2008 peak of roughly $147 per barrel. The investment bank also outlines a severe downside scenario, estimating that Brent could average around $111 per barrel by the last quarter of 202, if oil flows through the strait remain significantly constrained for more than two months and production recovers only to about 2 million barrels per day after reopening.
Energy Infrastructure Strains Threaten Long-term Oil Supply Instability
Iran’s recent attack on Qatar disrupted roughly 17% of its LNG export capacity, dealing a significant blow to global supply. According to QatarEnergy's CEO, Saad al-Kaabi, as quoted on Reuters, the damage is significant, with repairs likely to keep 12.8 million tons per year of LNG capacity sidelined for three to five years, potentially setting the region’s energy infrastructure back by as much as 10 to 20 years.
Per another Reuters article, attacks on energy infrastructure since the start of the U.S.-Israel war on Iran have realized the energy sector’s worst-case scenario, long-term damage to critical facilities and sustained disruptions to global supply.
The persistent threat to and repeated attacks on energy infrastructure across the Gulf, coupled with the risks of escalation, continue to reinforce expectations of sustained upward pressure on oil prices.
ETFs to Consider
Taken together, these factors suggest that oil markets could remain structurally tight, keeping long-term oil prices elevated well beyond the resolution of the conflict.
This backdrop creates a compelling case for investors to consider ETFs that could benefit from elevated oil prices in the post-Middle East conflict environment. That said, maintaining a long-term investment horizon remains crucial.
Investors can consider State Street Energy Select Sector SPDR ETF XLE, Vanguard Energy ETF VDE, State Street SPDR S&P Oil & Gas Exploration & Production ETF XOP, iShares Global Energy ETF IXC and iShares U.S. Energy ETF IYE.
With a one-month average trading volume of 66.096 million shares, XLE is the most liquid option, offering investors easier entry and exit while minimizing the risks of significant price fluctuations, ideal for active trading strategies.
XLE has also gathered an asset base of $41.16 billion, with the largest asset base among the other options. Regarding charging annual fees, XLE is the cheapest options, charging 0.08%, suitable for long-term investing.
On average, the aforementioned funds have gained 9.5% over the past month and 23.9% this year so far.
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State Street Energy Select Sector SPDR ETF (XLE): ETF Research Reports
iShares Global Energy ETF (IXC): ETF Research Reports
State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
iShares U.S. Energy ETF (IYE): ETF Research Reports
Vanguard Energy Index Fund ETF Shares (VDE): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).