(The Wall Street Journal, Jinjoo Lee, April 8, 2026)
The war in Iran makes it almost impossible to predict where the conflict will head and when the Strait of Hormuz will reopen, but whatever the final outcome, oil prices seem likely to remain higher, perhaps much higher, for longer, forcing many investors who have avoided energy stocks for years to rethink their position.
Investors have been underweight in the energy sector for some time: since 2021 more funds have exited energy sector ETFs than have entered, unlike a net inflow for all sectors, and even after this year’s rally the energy sector represents less than 4% of the S&P 500 market capitalization while technology accounts for 32%.
There have been many reasons why investors have avoided energy stocks, including a long period of calm after the inflation shocks of the ’70s and ’80s, the US shale boom that kept prices in check, low interest rates that made high-growth tech stocks attractive, and climate change concerns that made oil producers politically unpopular.
Fundamental reassessment of the energy sector
“The war in Iran makes it almost impossible to know where the conflict will head and when the Strait of Hormuz will reopen. Whatever the final outcome, oil prices seem likely to remain higher, perhaps much higher, for longer. This means many investors who have avoided energy stocks for years may have to rethink their position.”
Investors’ historic underweight
“Investors have been underweight in the energy sector for some time. Since 2021 more funds have exited energy sector ETFs than have entered, unlike a net inflow for all sectors. Even after this year’s rally the energy sector represents less than 4% of the S&P 500 market capitalization while technology accounts for 32%.”
Reasons for previous disinterest
“There have been many reasons why investors have avoided energy stocks. After the oil-induced inflation shocks of the ’70s and ’80s there was a relatively long period of calm. The inflation resurgence in 2021 and 2022 was also relatively brief after supply chains normalized and sanctioned Russian oil found its way onto the market. Low interest rates made high-growth tech stocks attractive. Investors were ‘lulled to sleep by the long period without inflation shocks’ and de-emphasized exposure to sectors that provide inflation protection like energy.”
Radical change in the context
“Times have changed dramatically and investors will have to do the same. It is becoming harder to dismiss an energy-driven inflation shock scenario. Analysts say the Hormuz bottleneck is likely to remain at least partially closed for some time. Even in the best case, resuming oil flow will take considerable time. The result: the world will be in an environment of structurally higher oil prices.”
Inflation protection
“The sector has by far the best record of beating inflation. During periods of high and rising price increases, oil and gas companies have beaten inflation 74% of the time and delivered an average annual real return of about 12.9%. Investors who want to increase exposure to energy stocks will need to do so cautiously. The S&P 500 energy sector has jumped 33% so far this year and valuations are rich.”
(Excerpt from the newsletter by Giuseppe Liturri)
