The escalation of the Middle East conflict, marked by retaliatory strikes between Washington and Tehran over the weekend, raised concerns over a prolonged conflict and pushed oil prices to multi-week highs.
Iran’s warning of retaliation against any further U.S. attacks has fueled worries about potential disruptions to global oil supplies. Given how the situation has evolved since the onset of the conflict, risks appear tilted toward further escalation rather than a near-term diplomatic resolution.
The U.S. benchmark, West Texas Intermediate (WTI) crude, is trading around $94 per barrel and has gained approximately 1.2% over the past five trading sessions and nearly 17.8% over the past month. Meanwhile, the global benchmark, Brent crude, has posted slightly stronger gains. Trading around $98.5 per barrel, Brent has risen about 1.6% over the past five trading sessions and roughly 17% over the past month.
Prolonged Disruptions Raise the Stakes for Oil Prices
Analysts now expect supply disruptions to persist beyond 2026 and well into 2027. As quoted on Reuters, Daniel Hynes, an ANZ analyst, said the intensifying Middle East conflict raises the prospect of a prolonged standoff, with the United States and Iran engaging in measured military actions. Persian Gulf oil flows could remain constrained through year-end, with Hynes stating that a return to pre-war throughput only in late first quarter or early second-quarter 2027.
Additionally, Goldman Sachs stated that escalating attacks on Middle East shipping and prolonged oil supply disruptions could drive crude prices as high as $120 a barrel, as quoted on Bloomberg News and cited by another Reuters article.
While the $120-per-barrel call may seem somewhat optimistic given current oil prices, the trajectory of the conflict suggests that risks are increasingly skewed toward further military escalation rather than a near-term ceasefire or durable diplomatic solution. This makes the bank’s bullish projection appear more credible than it might initially seem.
That said, the bank also sees oil falling to $80 a barrel if regional exports return to normal levels.
Energy ETFs to Watch
Amid renewed retaliatory strikes between Washington and Tehran, rising geopolitical risk premiums could provide a tailwind for the energy sector.
However, given the volatility and uncertainty surrounding the energy market, investors should closely monitor developments across the region. Intermittent flare-ups in the Middle East region and the progress of ongoing diplomatic negotiations could have significant implications for oil prices and energy stocks.
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, iShares U.S. Energy ETF IYE and Fidelity MSCI Energy Index ETF FENY.
With an average one-month trading volume of 26.29 million shares, XLE is the most liquid option, ideal for active trading strategies. The fund also has the largest asset base among its peers, with $42.48 billion in assets under management.
In terms of annual fees, XLE and FENY are the cheapest options, charging 0.08%. XLE, VDE and FENY have a Zacks ETF Rank #1 (Strong Buy).
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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
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).