Unrest in the Middle East: risks and opportunities in the energy sector

Geopolitical tensions in the Middle East are pushing oil prices up again. Are there returns where there's smoke?

The flare-ups in the Middle East have once again underlined just how vulnerable the global energy supply is to geopolitical shocks. The attacks carried out by Israel and Iran caused major turmoil on the oil markets, and on 13 June oil prices were even 13% higher at one point.

Iran sits on the third-largest oil reserves in the world, with the country producing around three million barrels of oil per day (around 4% of global production). Iran also has the second-largest gas reserves.

Not only is the country a major producer, it also controls the Strait of Hormuz, a narrow strait through which around 20% of global oil consumption passes. Iran has already openly threatened to close the Strait of Hormuz, even though Saudi Arabia, Kuwait, Iraq and Iran all rely on it to ship oil from the Persian Gulf.

Both Iran and Israel have already targeted each other's strategic energy infrastructure without yet achieving significant disruption (situation as at 17 June 2025). Should more oil infrastructure be heavily damaged or if the Strait were to be subject to a blockade, the impact on prices could be significant. Some analysts have warned that in such a situation, oil could surge towards USD 100-120 per barrel.

Risks and opportunities in both the short and long term

Higher oil prices traditionally fuel inflation – think of higher prices at the pumps as well as other products, from textiles and plastics to medicines and chewing gum. If oil prices remain higher for a long period of time, central banks, which only just seem to be getting inflation under control, may have to revise their interest rate policy to guard against a new energy shock.

This, in turn, would fuel fears of stagflation – stagnating economic growth combined with high prices. Although such a scenario may still seem somewhat premature (situation as at 17 June 2025), further escalation could cause a domino effect.

At the same time, the surges seen in the energy sector also offer potential for investors, as oil and gas shares generally benefit from rising prices. What's more, if the conflict were to deepen further, LNG and renewable energies could gain additional tailwinds. Note, however, that investment products are subject to risks. They can go up or down and there is a risk that you won't recover the amount you invested.

1. Oil

The immediate winners of higher oil prices are the major oil producers. Companies such as ExxonMobil, Chevron, Shell and TotalEnergies are seeing their profit margins rise as the price per barrel climbs. For those who prefer to diversify, there are several trackers that track an index of oil shares.

Speculative investors may take an overweight position in leverage products in order to benefit from short price peaks. These products are extremely risky and only suitable for experienced investors or for holding tactical positions in the short term.

If you want to add oil to your portfolio without putting all your eggs in one basket, you can consider a broader commodities tracker (in which oil has a significant weighting, in addition to metals and agricultural products, for instance).

You should remember that an investment in oil can offer the chance of rapid gains as well as sudden losses. If the situation were to de-escalate, oil prices could drop just as quickly as they climbed. Furthermore, persistently high oil prices could put pressure on demand in the medium term, which could then affect the oil companies' profits. The bigger picture will change on a fundamental level if geopolitical tensions continue or escalate into a long-term conflict. Oil-importing countries will want to reduce their dependency, which may boost domestic exploration, investment in strategic stocks and a renewed focus on energy independence.

2. Natural gas and LNG

Liquefied natural gas (LNG) is playing an increasingly important role in the energy market, particularly for Europe. Since the war in Ukraine began, Europe has reduced its gas imports from Russia and replaced them with liquefied natural gas, mainly from the United States and Qatar. Disruptions to the Strait of Hormuz would jeopardise part of the LNG supply, and prices on the LNG market could peak again – like they did in 2022.

Investors with an appetite for risk can take advantage here by investing in LNG producers such as Cheniere Energy, shipping companies that transport LNG, or infrastructure players that build and operate LNG terminals. Europe itself is investing in new LNG terminals from Germany to Greece so as to receive supplies from various regions.

In the long term, the LNG market is experiencing strong structural growth as a result of the global energy transition. Finally, natural gas is often seen as a transition fuel, given it is less polluting than coal and can be used in a whole host of applications.

3. Renewable energy

Every new energy crisis exposes the value of renewable energy as a strategic buffer. When oil and gas become weaponised in the political sphere, solar power, wind power and other green resources become even more attractive.

That said, solar and wind players may not reap instant benefits from the violence in the Middle East over the short term. It could be quite the opposite, in fact, as their technologies do not involve oil or gas, while their share prices have been under pressure in recent years due to high interest charges, long development cycles and falling subsidies. Nevertheless, the renewed focus on energy security and geopolitical independence may improve their long-term chances.

According to the International Energy Agency, renewable energy is currently cheaper to produce than energy from gas, coal and nuclear – even without the subsidies. Even Saudi Arabia – the largest oil producer after the United States – aims to source half of its electricity from solar and wind power by 2030. Installation costs are continuing to fall and the technology is becoming increasingly efficient.

Renewable energy is the ultimate answer to questions around energy dependence. Countries that generate their own solar or wind power will be less vulnerable to conflicts happening on the other side of the world. Governments may be able to bring forward their energy targets as a result of the current conflict – particularly if it escalates and oil supplies come under threat.

Investors can jump on this trend in several ways, from Vestas (wind turbines), First Solar (solar panels) and Ørsted (offshore wind farms) to exchange-traded funds (ETFs) that track cleantech or green infrastructure as a whole. Beware, however, that investing in this area can be a bumpy ride – as has been the case in recent years.

4. A broader energy ecosystem

Finally, there are other ways of investing in energy that may not be as obvious at first glance. Examples include uranium (which is seeing a renaissance as a CO₂-neutral source through nuclear energy), small nuclear reactors, companies developing smart networks (such as Siemens or Schneider Electric), or niche players focusing on hydrogen, biofuels or geothermal energy.

Commodities funds or multi-thematic ETFs can also act as a source of comfort for anyone wishing to invest in energy without sticking to a single subsegment. Traditional oil and commodities companies that are fully pivoting towards transition fuels or renewable energy can also be attractive for anyone committed to returns and sustainability.

Before investing, be sure to read up on the key characteristics and risks of financial instruments.

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