The war in Iran has highlighted how fragile global energy supply chains have become. Even before the conflict, oil markets were tightening due to reduced spare capacity and rising production costs. The supply shock has heightened investors’ focus on energy security and industries positioned to benefit from a world characterized by scarcer supply.
Although it has not altered the structurally lower productivity trajectory of the sector, the conflict has intensified geopolitical risks that support higher prices. The initial price spike is likely to moderate as maritime traffic recovers, but declining productivity and high geopolitical risk will probably keep oil prices structurally higher than before the conflict. So far, refineries have proven relatively resilient to war-related damage, so the market for refined petroleum products, such as gasoline, diesel, and jet fuel, should generally move in line with oil prices.
Liquefied natural gas (LNG) tells a different story. A large LNG production facility in Qatar has been heavily damaged, disrupting a significant share of LNG supply to Asia, potentially for several years. In the short term, the disruption will likely push LNG prices sharply higher; over time, however, prolonged shortages could accelerate a return to coal or a shift to renewables in parts of Asia, reducing long-term LNG demand.
LNG is also a key input in fertilizer production, raising concerns about food price inflation and even scarcity. While fertilizer costs are likely to rise, we do not expect a large-scale food crisis. State-backed fertilizer producers would likely continue to supply global markets, and countries involved in the conflict have strong incentives to prioritize fertilizer shipments through the Strait of Hormuz over other raw materials.
What should investors focus on in commodity-related sectors in this context? We see opportunities in companies linked to energy scarcity, such as oil services firms, in energy diversification including nuclear and renewable energy, and in producers of critical minerals like tungsten and uranium, which are often found in emerging markets.
