Recent developments in the Middle East have given rise to worrisome headlines across the world. While geopolitical tensions in the Middle East rightly spark concerns about oil prices, Westwood retains the view that the region’s unrest may have a more limited impact on global energy markets than is commonly feared. Israel’s recent declaration that it would avoid oil and nuclear in favor of military targets would seem to be further supportive of this view.

One key factor is the abundance of spare capacity held by major oil producers like Saudi Arabia and the United Arab Emirates. Even if Iran’s production were to decline significantly due to war or new sanctions, these countries have the ability to increase their output to offset the shortfall.

Furthermore, the Strait of Hormuz, a crucial shipping route for oil, is unlikely to be closed entirely. While a blockade would disrupt supplies and lead to a spike in prices, we believe it’s unlikely to become a long-term reality due to the economic consequences for the countries involved.

It’s important to note that any escalation in tensions that draws other producers into the conflict could still lead to price spikes. Investors should remain vigilant and monitor developments in the region closely.