Which Stocks Are Impacted by the Rising Oil Prices as Israel and Iran Fight It Out?

The long-standing conflict between Israel and Iran has some deep-rooted political and regional aspects with tensions jumping back decades. One of the key issues that is equally confusing is Israel’s existence as a Jewish state, which Iran (an Islamic nation since around 1979) has not recognized. The conflict potentially intensified when Iran extended its support for militant groups such as Hezbollah (operated throughout Lebanon) and Hamas (the de facto governing body in the Gaza Strip since 2007. It ousted the then-Palestinian authority from power to capture the Gaza Strip) which have actively engaged in hostilities with Israel. Adding to this, Iran’s interest in possessing nuclear capabilities has raised concerns in Israel and other nations globally.

In terms of resources, Iran is rich in natural reserves, particularly oil and gas. It owns some of the world’s largest reserves of these resources. In contrast, Israel lacks natural energy resources but it has developed some of the advanced technological and military-grade industries. Their conflict affects not just these two nations but also other broader Middle East countries with rich natural resources. This also significantly influences the geopolitical landscape on a global level. The ongoing tensions do not seem to subside rather it’s intensifying posing a threat for regional and global stability.

Stuck in the complex web of geopolitics, companies are struggling to continue their operations while the tensions escalate at a global level. Especially any such conflicts incurred in the Middle East have always had a major effect on global markets, specifically in the sectors of oil and gas. As Israel and Iran are not settling down but rather pitting themselves towards a bigger feud, the price of crude oil has surged, impacting countries worldwide. It has dual perspectives: challenge or opportunity. How investors view this will determine their future in this cobweb.

 

Geopolitics and oil trends

The Middle East which is part of the top ten oil-producing countries, contributes approximately 30% of global oil production. The majority of Middle Eastern oil-producing states are members of the Organization of the Petroleum Exporting Countries (OPEC). Some of the countries include Saudi Arabia (the World’s largest oil producer accounting for 15% of the entire global output), Iran, Iraq, the United Arab Emirates (UAE), Kuwait, and Qatar.

So, any tension specifically in these regions erupts a rise in oil prices. If sanctions are imposed by governmental (by a single country) or even intergovernmental (by a group of countries unilaterally) organizations on Iran will significantly reduce the oil output at a global level. So, there will be reduced oil supply but higher demand. Logically, this will lead to an increase in its prices.

Take an example of Brent crude oil prices throughout the conflict:

• December 2022 – Crude oil prices rose above $100 per barrel after Russia invaded Ukraine.
• October 2023 – Brent Crude Oil reached an all-time 52-week high of $94 per barrel.
• Early October 2024 – Brent Crude Oil was trading at $81 per barrel.
• Mid-October 2024 – It dropped to $82 per barrel, following temporary supply adjustments

 

Potential sectors under the radar

There are certain specific domains of industries that will be affected more by the unpredictable tensions between Israel and Iran.

 

Energy sector

When the oil prices fluctuate, oil producers and explorers generally stand to gain from higher revenues and better profit margins. Some companies with this edge include:

Woodside Energy (ASX: WDS)

As the oil prices rise, Woodside’s earnings typically follow pursuit. One example was when the oil prices spiked in 2022, Woodside reported a significant boost in their revenue. As one of the largest independent oil and gas companies in Australia, they have diversified their oil and gas assets. They are further prone to increased growth if there arises a demand for liquified natural gas (LNG). This is possible since there is an overall scarcity of oil.

Santos Ltd (ASX: STO)

With significant exposure to the international oil market, this big player has their flagship reserves of oil and gas in Australia and Papua New Guinea. They are also involved with investments in huge LNG projects that can further stimulate another stream of profits for this company as the demand for an alternative to oil emerges.

ExxonMobil (NYSE: XOM) & Chevron (NYSE: CVX)

Some US energy giants such as ExxonMobil and Chevron also stand to gain from this ongoing crisis in the Middle East. Their recent deliverables have shown a strong balance making them a good long-term pick for investors looking out for the oil market.

Beach Energy (ASX: BPT)

Even though it is a smaller energy producer, the company focuses on exploring and producing oil and gas in Australia and New Zealand. Its recent share prices have correlated with strong oil price surges thus making them an attractive and budding option for investors to consider.

 

Airline stocks

With high-grade military weapons being involved in the rising tensions in the Middle East, it spells trouble for airlines using that airspace. Aviation is also a highly fuel-dependent sector with direct effects on the people if conflicts like Israel and Iran erupt. High fuel prices generally lead to high ticket prices. Due to this factor, the need for consumer demand for air travel will significantly fall.

Qantas Airways (ASX: QAN)

As one of the largest airline industries in Australia, they have to look out for rising oil prices as it can affect their operating expenses. In the previous time frames when oil prices peaked, Qantas has managed to tackle the issue by adding fuel surcharges or hike fares which can hurt the underlying demand for air travel. Higher costs could also reduce the airline’s profitability.

Regional Express Holdings (ASX: REX)

Another major Australian airline that can incur losses from increasing its operational costs to tackle the oil demand. As a budding airline industry, this company may possess less flexibility to adapt to higher fuel prices. This makes them ever more vulnerable to the uncertain volatilities in oil prices.

American Airlines partnered with Qantas to offer a large network between Australia, New Zealand, and North America. With unpredictable conflicts in the Middle East and as a consequence rising oil prices will affect the chain of operations of these airlines on a global scale.

 

Manufacturing stocks

From chemicals to heavy manufacturing, companies will need to manage these rising costs that will in turn affect their profit margins.

BHP Group Ltd (ASX: BHP)

While not directly linked to oil, this global mining giant is facing a rise in operational expenses due to rising energy costs. On the other hand, BHP’s coal and copper production activities could benefit from increased demand for raw materials. So, this can balance out the negative impacts of rising oil prices. From a vantage point, the company stands to gain from both unexpected downfalls and unforeseen surges.

BlueScope Steel Ltd (ASX: BSL)

Another steel manufacturing giant is facing increased production costs due to rising energy prices. As the making of steel is already an energy-intensive process, any sudden hike in the prices of energy will significantly raise the company’s input costs.

 

Transportation and shipping sectors

Fueling vehicles, ships or other modes of transport is another major usage of oil that will be deeply impacted when tension in the Middle East causes an unstable oil price range.

Toll Holdings Ltd (ASX: TOL)

As one of Australia’s largest logistics and transportation companies, they have to manage their operational costs along with increasing fuel costs. The company would have to either absorb these costs by itself and take a toll on its profit margins or pass them onto its clients, potentially risking consumer trust and reducing demand for its services.

Aurizon Holdings Ltd (ASX: AZJ)

Aurizon is Australia’s largest rail freight operator. Although not directly affected by the consequences, rising oil prices can still impact fuel costs. Increased expenses could eat into Aurizon’s margins unless the company takes a hit for that or lets its clients pay for it. Either way, the stock could face severe pressure to sustain.

Dow Inc. is a major player in the chemical manufacturing space. Its business model is vulnerable to fluctuations in energy prices, especially since its petrochemical-based products heavily rely on the raw materials of oil and energy reserves.

 

Consumer goods sector

Higher oil prices also take a toll on consumer goods companies, especially those that primarily rely on plastic, packaging, or transportation to get their goods to market.

Coles Group Ltd (ASX: COL)

Rising oil prices have impacted almost all the major sectors including consumer goods as they have to manage their production costs. The company needs to mitigate rising fuel expenses otherwise their logistics unit will have to endure significant loss margins.

Woolsworths Group Ltd (ASX: WOW)

This company is prone to face higher distribution costs as fuel prices increase at an unprecedented rate. Mitigating this rise in oil means either letting it eat up their profit margins or passing it onto their consumers by risking their demand ultimately.

 

Conclusion

Rising oil prices due to the increasing conflicts between Israel and Iran will impact various stocks in different sectors. Energy companies like Woodside, Santos, and Beach Energy stand to benefit from higher revenues, while industries reliant on fuel such as airlines, transportation, and manufacturing may face challenges due to rising costs. The companies will have to mitigate this by carefully evaluating alternatives to sustain. And when geopolitical issues like this pertain it is essential to understand the dynamics to run the businesses better.