By Greg Buckley
April 2026
Ever since the war in Iran began, the market has been fixated on elevated oil prices and what the closure of the Strait of Hormuz might mean for energy costs and inflation in the near term. Some have speculated that crude oil, which has been hovering at around $100 a barrel for much of March, could jump to $150 or more if the Strait remains closed for a prolonged period of time.1
Yet investors focused on short-term spikes in oil prices in the days and weeks ahead may be missing a more consequential shift underway with potential implications for the next several years.
To begin with, the disruptions caused by the closing of the Strait of Hormuz, through which 20% of the world’s oil and natural gas is shipped, has done away with earlier concerns about the possible glut of oil worldwide. Those worries, combined with the reluctance to repeat the mistakes of the recent past—namely, overspending during the shale boom followed by the collapse of demand in the pandemic—have left investment in oil exploration and production well below the prior-cycle peak. Companies have been channeling cash toward balance sheet repair and shareholder returns rather than expanding supply.
The conflict in Iran sets up an environment where oil prices could remain higher for longer than previously expected, which in turn is likely to drive upstream investment up. But it’s not just that investments could rise in the coming years. It’s how exploration and field development could develop.
Diversifying Global Supply
In many ways, the current environment is analogous to the beginning of the war in Ukraine, when Europe was forced to recognize that for both economic and security reasons, it relied too heavily on Russia for its natural gas. The conclusion at the time was that they had to diversify their supply, and that took place fairly quickly. By the end of last year, Russian gas represented only 13% of European Union imports, down from 45% before the war began in early 2022.2
This is something many countries are grappling with today amid concerns the Strait of Hormuz could be compromised for an extended period of time. Whether this is seen as energy supply chain diversification or a national security imperative, the world is going to attempt to establish new sourcing and logistical relationships to prevent a repeat of the supply shock caused by the war in Iran.
Think of this as the energy’s sector’s version of reshoring, though not necessarily in the sense of establishing local production. Rather, countries will be seeking to diversify supply sources to multiple regions that are geopolitically secure. This is particularly true for countries that are not only heavily dependent on the region for energy but whose imports of oil and gas largely pass through the Strait of Hormuz. This includes large parts of Asia, where Japan and South Korea source 80% or more of their oil from the Middle East, and even Europe, which continues to rely on the region for up to a third of its oil supply.
All of this is taking place at the same time that the most productive basins for shale in the U.S. are maturing and can no longer be counted on as the world’s marginal source of supply growth. Establishing new supply sources could lead to growing investments along with a reversion to a more traditional commodity cycle, characterized by longer development timelines and sharper price responses when supply tightens.
Opportunities and Risks
Who might be viewed as potential winners in the coming years? For starters, the opportunity set should expand materially for E&P companies, though the dispersion of outcomes will too. Over the past decade, many U.S. E&P firms converged on similar strategies, focusing on a narrow set of shale basins with comparable cost structures. That uniformity limited differentiation. This next phase should reverse that dynamic, expanding the geography and nature of upstream projects.
Other potential winners include oilfield services companies. Increased global investment in exploration and development should translate into increased demand for drilling, completion, and production services, which would benefit firms such as Schlumberger, Halliburton, and Baker Hughes that sit at the center of this cycle. Their exposure is leveraged not to any single basin or region, but to the aggregate level of global activity.
Also, as energy security and supply chain diversification become priorities, that could refocus efforts on other projects, such as the expansion of pipeline infrastructure to bypass vulnerable transit routes. Saudi Arabia’s decision, for instance, to build an East–West pipeline linking its Gulf fields to terminals on the Red Sea has taken on renewed strategic significance in light of the closure of the Strait of Hormuz. The project, which was constructed in the 1980s during the Iran-Iraq war, was viewed by some as costly redundancy. However, it effectively created an alternative export route that bypasses one of the world’s most vulnerable chokepoints, which is effectively controlled by Iran. Periodic disruptions and threats to shipping through Hormuz have since underscored the value of that foresight.
If capital flows into securing alternative transport routes and reducing chokepoint risk, spending could cascade across the value chain, lifting not just exploration and production activity but the broader network of companies that build, equip, and sustain the physical backbone of the oil market. This could benefit a wide range of service providers, including engineering firms, construction contractors, pipe manufacturers, and providers of compressors, valves, and monitoring systems. Midstream operators would capture steady, fee-based revenues from increased throughput, while industrial suppliers and specialized service providers would benefit from maintenance, upgrades, and long-term operational contracts.
This shift could also reconfigure where new supply originates. Regions that offer both resource potential and geopolitical alignment stand to benefit disproportionately.
Canada, with its vast reserves and proximity to the U.S., becomes more strategically important, particularly if infrastructure constraints are addressed. Brazil and West Africa, where offshore developments continue to yield meaningful discoveries, will also attract increased capital. So could emerging plays such as Guyana and Suriname, underscoring the potential for new supply centers outside traditional Middle Eastern dominance.
Conclusion
Regardless of how the diversification of the global supply takes shape, two things are clear: The first is that companies are likely to pursue a wide range of international opportunities to diversify global supply. The investments being contemplated today, which include offshore developments, infrastructure projects, or international shale plays, will not fully manifest in supply for several years, making this a long-term story.
However, execution will likely vary widely, which puts the onus on active managers to identify the winners from the losers. This is an environment that will reward selectivity. The dispersion of outcomes across companies, regions, and subsectors will increase, favoring active management. Companies with the technical capability, balance sheet strength, and operational discipline to navigate complex projects stand to outperform. Those that overextend into unfamiliar geographies may struggle.
For investors, this expands potential opportunities in the energy sector for years to come. But it also increases the range of potential results, requiring greater attention to research, industry knowledge, and security selection.
1 “If the Strait of Hormuz is Closed for Another Month, $150 Oil Price is Likely, Says UBS,” MarketWatch. March 27, 2026.
2 “EU Reaches Deal to Ban Russian Gas Imports by 2027,” The Wall Street Journal. Dec. 3, 2025.