Share prices for energy companies have fallen on the US/Iran deal, but the energy market is not back to normal.
- The S&P 500 Energy sector is down 4.5% in June
- The oil price is back below $70 a barrel, while gas prices have also fallen
- However, it is not ‘business as usual’ for energy markets
The energy sector has been one of the casualties of the tentative peace deal in Iran. The S&P 500 Energy sector is down 4.5% in June, as investors assume that it is back to normal for energy prices. However, the Iran crisis will not be easily set aside. There are short and long-term ramifications even as the Strait of Hormuz reopens.
Traffic has resumed through the Strait of Hormuz with daily volumes running at around 40% of their average level. The oil price is back below $70 a barrel, while gas prices have also fallen. The UK gas price is down 15% month on month. For context, the oil price is now at the same level it was in July 2025.
This all looks very much like ‘back to normal’ for the energy sector, but Jonathan Waghorn, portfolio manager on the Guinness Global Energy Fund, says normal business has not resumed. He believes it will take several months to return to pre-conflict traffic. There is also damage to infrastructure, including downstream facilities, refineries, export and storage terminals that could take several years to be rebuilt. For example, Qatar has said it will take 3-5 years to rebuild some of its LNG facilities.
Waghorn says there are other longer-term implications. Iran now knows that it has a powerful bargaining chip, and may close the Strait every time tensions flare. This could raise the geopolitical premium for oil. Companies will also need to replace inventories, and may choose to hold higher reserves given the risks exposed by the crisis. There will be some permanent supply impairment, possibly up to 1-2m barrels a day.
The war may also create a change in attitudes from governments towards energy. Energy security has become the watchword for governments rather than striving for the cheapest or the cleanest option. This is likely to see ongoing investment into alternative energy sources, including wind, solar and nuclear.
While oil and gas prices are back to a manageable level, it is not ‘business as usual’ for energy markets. The war in Iran may be over for the time being, but it has exposed vulnerabilities in the global energy market that cannot be unseen. While the immediate response to the resolution of the crisis has been to sell down energy companies, investors might find that they have more strength in the longer-term.
