Power boost for domestic oil and gas majors

Oil shock boosts North American energy complex

The conflict between the U.S. and Iran continues to roll on. It’s now been more than seven months after the initial attacks on Iranian facilities and its political elite in March 2026.

What was supposed to be a short and decisive military effort has developed into a long-lasting stalemate, with oil tanker traffic through the strategically important Strait of Hormuz down dramatically from the 20 million barrels of oil equivalent a day before the conflict. The public statements at the United Nations General Assembly meeting in New York at the end of September by President Trump and the leader of Iran showed no willingness to seek compromise, although negotiations continue.

As previously noted, the price of oil, having risen to over US$100 a barrel after the initial attacks, had settled back around US$60 a barrel during the summer when it seemed some settlement might be reached. Furthermore, a portion of the oil exported from the Persian Gulf was replaced by other routes, such as the Saudi Arabian pipeline from its oilfields near the Gulf to the Red Sea, and Oman’s ability to export oil from the Arabian Sea coast. The commodities most affected were actually fertilizer and natural gas, as the gas from the enormous fields in Qatar and the UAE needed to use Liquified Natural Gas (LNG) tankers to reach markets.

Knock-on effect for refined products

The other commodities showing the biggest price moves were refined products, like aviation fuel and especially diesel, where some refineries were taken offline due to damage or inability to ship product. It has been noted that the present price of diesel, over $6 a gallon in the US, is equivalent to WTI oil selling at US$190 a barrel.

Gasoline is back over $4.50 a gallon in the US, a level which is hitting consumer spending and sentiment hard. Diesel is used by freight shippers and feeds through into the price of virtually every product and service as the cost of transport is reflected in higher prices or, in some cases, shortages.

With the recent seizure of several islands off the coast of Yemen at the mouth of the Red Sea by the Iranian backed Houthi militia, the alternative export route for much of Saudi oil production is now under threat.

Together with a resurgence of drone and rocket attacks on tankers and facilities in the Persian Gulf, the oil price once more exceeded US$100 a barrel in mid-September, before pulling back to the low US$90s on renewed hopes of the Strait of Hormuz reopening.

Investors seem to have become complacent about the negative effects of prolonged high oil prices given the limited impact of the conflict through the summer. This muted effect was due to several unrepeatable factors, including the U.S. government selling down most of its Strategic Petroleum Reserve (SPF), China reducing its imports, and the Saudi pipeline transporting 5 million barrels a day through the Red Sea.

As far as refined products were concerned, Russia was still exporting large quantities of diesel and other fuels to fund its war in Ukraine. U.S. refineries were operating at mid-80% capacity and had the ability to ramp up production to above 97%-98%, especially as the difference between crude oil prices at US$60 a barrel and refined blends (the crack spread) was exceptionally wide and profitable for them.

Now Russian refineries are being targeted by Ukrainian drone attacks, U.S. refineries are working at full capacity, the SPR is down to record low levels, and the Red Sea route is under serious threat.

While some analysts believe President Trump will strike a deal with Iran to ensure the price of gasoline falls below $4 a gallon before the U.S. mid-term elections in early November, the opportunity to do so is rapidly shrinking. As a result of the high energy prices, CPI inflation has been running well above 3% and led to the new Federal Reserve Chair Kevin Warsh raising short term interest rates by 0.25 percentage point, to 3.75%-4%. Moreover, markets expect another 0.25 percentage point increase before year end and then at least two more increases next year.

Energy investment implications

Investors should expect elevated energy prices to continue for the next 18 months at least, unless the rise in interest rates tips the U.S. economy into recession. Oil and gas companies with reserves and production located in politically stable countries that are not exposed to geopolitical issues, such as North and Central America and Australasia, will benefit from higher prices and the need for consumers to replace supply from war affected regions. This makes Canadian and U.S. conventional energy companies very attractive.

They are also a play on the increased electricity demand from the Artificial Intelligence (AI) data centre build out by the mega capitalization technology companies as well as the electrification of the auto industry, which has been accelerated by higher gasoline prices making electric vehicles more competitive.

These include U.S. integrated majors ExxonMobil Holdings Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX), and Canadian majors Canadian Natural Resources Ltd. (TSX: CNQ), and Suncor Energy Inc. (TSX: SU).

Canada’s high weighting in energy stocks is one of the reasons why international investors are starting to increase their exposure to the country. Energy comprises 17% of the S&P/TSX 60 Index.

The iShares S&P/TSX Capped Energy Index ETF (TSX: XEG) has tripled in the last five years before dividends and is up almost 50% in the last 12 months. That’s double the return of the Nasdaq Index.

Investors should maintain a substantial exposure to energy stocks, not least as a protection against the higher cost of heating and transport that elevated oil and gas prices are causing.

Gavin Graham is a veteran financial analyst, money manager, formerly Chief Investment Officer of BMO Financial, and a specialist in international investing, with over 35 years’ experience in global investment management. He is currently Chief Investment Officer of Calgary-based Spire Wealth Management.

Notes and Disclaimer

Content copyright © 2026 by Gavin Graham. Excerpted from an article that first appeared in The Internet Wealth Builder newsletter. Used with permission.

The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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