Iran Conflict: Investment Implications and the Future of Energy
As investors rather than political analysts or military strategists, we will not comment on who wins in the Iran conflict. However, major events always have investment consequences. The undeniable winners, both in the short and long term, are technology companies, infrastructure and construction companies repairing war damage, and weapons manufacturers replacing consumed equipment. None can compare to them.
Impact on the Oil Industry
Oil prices have decreased. Iran could rejoin the global oil market, increasing supply. If Putin ends the Ukraine war, this would add further supply. However, price and delivery disruptions due to war could reduce consumption in the long term, similar to the 1970s oil embargo. But unlike that era, today's consumers have alternatives, while consumers in the 1970s could only use less. Today they can switch to renewable energy or find supplies from new or resurrected fields outside the Persian Gulf, such as Guyana and Venezuela.
More supply and less demand - this is not a good business proposition.
American consumers are still fully supplied but face price shocks because oil sells at world market prices, and American oil companies don't sell oil at $70 to their fellow citizens if they can sell it to foreigners at $110. Isn't that market competition, pricing products to keep up with competitors? Ultimately, consumers will ask: "Do we really need this hassle? Maybe electricity isn't so bad. Even Ferrari produces electric vehicles now."
| Decade | Response to High Oil Prices | Alternatives |
|---|---|---|
| 1970s | Less consumption | No alternatives available |
| 2020s | Energy transition | Renewables, electrification |
This war could help new non-Persian Gulf suppliers gain market share from traditional companies, but that means more supply competing for the same demand. Some oil companies may do better, but the industry as a whole will fare worse.
Decline in US LNG Imports to EU: Issues for Trade Agreements
Filling the gap from war damage in the Persian Gulf and shortages from Russia seems like a short-term successful strategy for LNG suppliers. Do Europeans have enough LNG to fill storage for winter? Can Asian markets find alternatives to Persian Gulf LNG? Looking further, the war may send a message to LNG consumers about the need to diversify supply, purchasing from safer locations. Dependence on Russia proved unwise, and the Persian Gulf could flare up at any time.
Buying more from the US? This would make sense under normal conditions, but requires reconsideration of US politics. "LNG exports reduce domestic supply, creating upward pressure on US natural gas prices, thereby increasing electricity and heating bills. And guess which political leader promotes exports?" How can that become a soundbite in the next two elections? The Trump administration had conflicting energy policies, ready to break treaties, and believed foreigners were ripping us off. Therefore, LNG contracts with US suppliers come with political risks.
What about Canada?
In summary, LNG buyers will try to diversify supply, but may ultimately consider how much LNG they can replace with something less risky and more domestic. LNG must then compete with renewables and nuclear. It faces similar risks as oil - geopolitical instability affecting prices and supply. These risks always existed, but now consumers can find competitive alternatives.
Nuclear Energy: The Choice of Conservative Politicians
Nuclear energy, the preferred non-carbon source of conservative politicians? There's no doubt that the war will encourage more discussions about this expensive energy source and more government plans to subsidize it. We may see profits from retrofitting the existing nuclear fleet to extend lifespan and performance, and domestic nuclear fuel supply - but not in reviving obsolete fission technology through subsidies for existing designs or building smaller versions of the same technology. Perhaps fusion reactors will change the picture, but we don't see the advantages of choosing the most expensive and controversial means to generate electricity.
Consider an AI user's comparison of Chinese vs. US AI: "The Chinese version produces 90% of the output of the US version at 10% the cost." Nuclear energy produces electricity, and a wind turbine or a solar-plus-battery combination produces the same capacity at half the cost.
Future Direction: Energy Efficiency, Renewables, and Storage
Ultimately, technology and economics should rise above politics. We believe the war will convince more energy policymakers to focus on three resources that are economically competitive and not affected by international price and supply instability: energy efficiency, renewables, and storage. Efficiency - what we used to call conservation - could be the cheapest energy resource, but politicians will avoid it like the plague.
I heard a comment during a recent heat emergency despite warnings of grid collapse: "What right do they have to tell me how to set my air conditioner. I'll do what I want."
Continuous research and development will further reduce the costs of renewable energy and storage. But there's a problem. Chinese manufacturers dominate the market. European and American policymakers may not want to buy from them, but the rest of the world will.
Conclusion
In conclusion, the Iran conflict does not create notable business or investment opportunities except for the clear winners we mentioned at the beginning. It doesn't deliver a fatal blow to the fossil fuel industry, a scenario that many (but not OilPrice readers) would eagerly await, especially if directed by Werner Herzog. No, we think the oil and gas industry is the loser if the end of the war increases supply.
The war has shown a clear truth: the future of energy lies not in resources vulnerable to geopolitical instability, but in solutions that are efficient, sustainable, and economically competitive. For investors, this is not just a lesson from one conflict, but a direction for a new energy era.