When Energy Flows, Economies Grow: Iran, Oil, and Portfolio Risk
By Adam Thurgood on March 9, 2026
Throughout history, economic growth has closely followed energy availability and consumption. When energy flows freely and affordably, economies expand. When energy is constrained, growth slows. Put simply, economic growth is energy transformed. As the graphic below shows, there are no high-income, low-energy consuming countries.
Why the Strait of Hormuz Matters
The conflict with Iran is serious for numerous reasons that go beyond the scope of this brief article. However, I would be remiss if I didn’t mention the loss of human life from kinetic warfare is unsettling and saddening. Another serious risk for the global economy lies in a 21-mile-wide waterway known as the Strait of Hormuz. Roughly 20% of the world’s oil supply passes through this waterway, creating a critical chokepoint for the movement of energy.
As you can see in the graphic below, the Strait of Hormuz runs alongside the coastline of Iran. Given how narrow the waterway is, Iran can essentially close seaborne movement through the strait by threatening to destroy any tanker that attempts passage. As the bombs fell on Iran over the past week, the country used this point of leverage by declaring the Strait closed. As a result, the market began to price in the possibility of a meaningful disruption to Middle Eastern oil flows.
Image: ChatGPT, as of 12/31/25
While the U.S. doesn’t rely heavily on oil from the Middle East, it’s important to understand that the oil market is global and supply disruptions in one area of the world can, and likely will, impact the price of oil everywhere. Given the sheer size of global supply that is stuck in the Persian Gulf, it’s no wonder that oil prices have soared in recent days and are creating significant risk to the global economy.
The Oil Price Spike
Just a couple short weeks ago, the market assumed the world was awash in oil. The oil price ranged between $55-$65 per barrel with a bias to lower prices in the future due to a consistent supply glut. Then kinetic conflict broke out with Iran and market assumptions shifted quickly. Prices and volatility surged, with the spot oil price reaching $120 in the early hours of trading on Monday, March 9th. While oil prices have declined from parabolic levels earlier in the week, the fact remains that the price of oil in the market today is significantly higher than most market participants thought possible and could move higher if the Strait of Hormuz stays closed for an extended period.
What the Oil Futures Market is Signaling
Oil futures are not a universally known concept, so a brief explanation may be helpful. A futures contract is simply a legally binding agreement to buy or sell something at a set price on a future date. In the oil market, futures prices tell us what traders today are willing to pay for oil months or even years down the road.
What is interesting right now is the difference between the current price and the price for delivery one year in the future. While the current oil price is roughly $86, the price 12 months into the future is only $66. In other words, futures markets are pricing oil meaningfully lower a year from now, suggesting that traders expect the current supply tensions to ease.
Markets do not always get geopolitical risks right. In fact, most active traders are conditioned to look through geopolitical tensions, as such events have historically had only temporary effects on markets. That mindset may create risk in today’s environment. If tensions remain elevated longer than futures markets imply, higher oil prices could become the norm, not the exception.
Gasoline Prices React Quickly
While oil prices may seem distant for daily life, the transmission into the real economy can be surprisingly quick. Crude oil is the primary input used to produce gasoline, diesel, jet fuel, and many other refined products. When oil prices move sharply higher, gasoline prices usually follow quickly.
Gasoline prices are already up about 50 cents since the conflict began, a 17% increase. Consumers will feel the pinch, particularly lower-income households. Gasoline makes up about 3% of the consumer price inflation basket, so all else equal, a sustained move of this magnitude could add roughly a half percentage point to headline inflation. Rising inflation could complicate the Federal Reserve’s path toward lower interest rates.
Energy Stocks as a Hedge
Energy stocks have largely been ignored if not avoided by market participants over the past decade. The energy sector’s share of the S&P 500 has fallen to about 3%, an almost meaningless percentage. Stocks such as Nvidia and Apple have weights roughly two times higher than the entire energy sector. Today, the U.S. equity market is dominated by energy consumers, while energy producers represent only a small share of total market value, despite continued growth in energy demand.
This internal inconsistency led us to view energy as an interesting investment opportunity. In addition to providing investors exposure to companies with strong balance sheets and solid dividends, the energy sector also serves as a hedge to an inflationary outcome caused by an energy price spike that would otherwise hurt the stock market. An outcome that markets are now beginning to consider more seriously.
The energy sector has performed quite well over the past few months but has not surged in value since the start of the conflict. This is likely due to the market pricing in a swift reopening of the Strait of Hormuz and sustainably lower oil prices in the future. If this view proves incorrect, energy stocks will serve as an important source of portfolio resilience.
Final Thoughts
We cannot predict the duration of geopolitical tensions, nor do we attempt to trade short-term headlines. In an environment where long-term supply risks may be underestimated, owning energy producers provides portfolios with important protection should oil prices remain higher for longer. Regardless of how this conflict resolves, we believe energy remains a foundational input to global economic activity. Maintaining exposure to that foundation continues to make strategic sense.
