Oil Surges on Iran Crisis: Best ASX Energy Stocks to Buy Now

ASX Energy Stocks: What the Oil Spike Means Now

Oil prices surged more than 5% in just two trading sessions this week after US-Iran nuclear talks ended without a breakthrough in Geneva. Brent crude climbed above US$71 per barrel, while West Texas Intermediate (WTI) reached US$66, both their highest levels since July.

Tensions have clearly escalated. Two US carrier strike groups are now positioned in the Persian Gulf, and research firm Eurasia Group estimates a 65% chance of strikes on Iran by the end of April. ASX energy stocks reacted quickly. Santos (ASX: STO) rose sharply, while Woodside Energy (ASX: WDS) gained nearly 4%.

Still, investors should stay cautious. Despite the geopolitical tension, a global oil surplus remains in the background. The key question now is whether this rally reflects a genuine shift in supply risks or simply a short-term spike driven by fear.

What are the Best ASX Energy Stocks to invest in right now?

Check our buy/sell tips

Why This Rally Could Continue, But Has Limits

The Strait of Hormuz is the main reason oil traders are on edge. Around 20% of the world’s daily oil supply moves through this narrow waterway near Iran. Iran temporarily closed parts of the strait this week for military exercises, which increased market anxiety.

We expect oil to trade in a US$65 to US$75 range while tensions remain high. Right now, the “fear premium” is adding roughly US$7 to US$10 per barrel. That extra risk pricing is supporting oil in the short term.

However, the IEA’s latest estimates point to a potential surplus of more than 3.7 million barrels per day in 2026, assuming OPEC+ proceeds with its planned production increases. That would be the largest non-pandemic glut in recent history. This oversupply limits how far prices can rise. In simple terms, tensions are creating a price floor, but excess supply is creating a ceiling. If the US and Iran reach an agreement, oil prices could quickly drop back toward the low US$60s. If that happens, energy stocks would likely fall just as quickly as they rose.

Santos, Woodside, or Origin: Which ASX Energy Stocks to Watch

Santos (ASX: STO) looks like the strongest pick right now. The company shipped its first LNG cargo from the new Barossa project in January, marking a major growth milestone, and free cash flow jumped 30% in the December quarter. What makes Santos particularly attractive is its low unit production costs of under US$7 per barrel of oil equivalent, which means it can still generate solid returns even if oil pulls back. With a consensus buy rating from analysts and an average price target suggesting roughly 20% upside and a dividend yield of around 5.5%, the risk-reward looks favourable.

Woodside (ASX: WDS) is trickier to call. Shares have already run up roughly 15% over the past month, closing at A$27.43 on Friday. With its 2025 Annual Report due Tuesday, February 24, we think it makes sense to wait before adding positions. Production is expected to dip in 2026 due to planned maintenance, and UBS carries a neutral rating with a lower price target. In our view, Woodside is a hold until the results provide more clarity.

Origin Energy (ASX: ORG) is better suited for investors who want defensive energy exposure rather than a direct bet on oil prices. Most of Origin’s earnings come from electricity and gas retailing, not oil production.

The Investor’s Takeaway for ASX Energy Stocks

Geopolitical oil spikes are real but historically temporary. The Israel-Iran conflict in mid-2025 sent oil surging, only for prices to reverse within weeks. For investors looking at ASX energy stocks, discipline matters. We believe Santos offers one of the more balanced ways to approach this rally. The company’s expanding production base and relatively low operating costs give it resilience. If oil holds above US$70, Santos benefits.

If prices drift back towards the low US$60s, its cost structure provides some downside protection compared to higher-cost producers.
Rather than chasing the spike aggressively, gradually building a position may be the smarter strategy. This approach reduces the risk of buying at a short-term peak while still giving exposure if tensions continue.