How the Strait of Hormuz blockade has changed the energy investor strategy
When investors look at the disruption caused by the closure of the Strait of Hormuz, they tend to ask one question: where is the oil price going?
When the Strait does eventually reopen, the oil price will correct. That adjustment will be steep and relatively fast. Markets are efficient when it comes to crude; the moment the supply constraint lifts, pricing will reflect it quickly.
Where we end up by year-end, no one can say with certainty, but our expectation is somewhere below the $100 mark, though still meaningfully above where the year began. That directionality is not in doubt.
What is in doubt, and where I believe the genuine investment opportunity lies, is in the products derived from that oil and gas.
The slope of normalisation for downstream commodities will be far shallower than for crude itself. This is not a subtle distinction. It has real consequences for which companies benefit, and for how long.
Fertilisers
With Qatar’s natural gas effectively offline, fertiliser production has stopped.
That is not simply a logistics problem you resolve the moment ships start moving again.
The supply chain for urea fertiliser is sequential and slow: you need natural gas flowing, raw materials loaded, shipped to production facilities, processed, reloaded, and then distributed to agricultural markets. Each of those steps takes time. And we are entering a period where that time is particularly costly, because the global planting season is approaching.
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Most countries are already hoarding whatever urea stocks they have. Once Q3 arrives and demand begins to build ahead of the next planting cycle, the question of how much supply is available, and at what price, becomes acute.
This is why we initiated a new position in a Saudi Arabian fertiliser company. The facilities have not been affected, and while the Strait’s closure does limit their export capacity today, they are the operators best positioned to respond quickly once it reopens.
They are geographically close to the bottleneck, they have the production infrastructure in place, and critically, their business model is oriented around returning earnings to shareholders through dividends.
As margins expand on the back of structurally elevated prices, even as those prices begin to normalise, the dividend profile of this holding will reflect that.
Refined products
A similar logic applies to refined products.
Jet fuel and diesel sit in an unusual position right now.
Two significant refining facilities in the region — in Bahrain and Kuwait — have been damaged and remain offline. Restarting a refinery is not an overnight exercise; it is essentially like heating an industrial oven from cold, then pushing product through, then shipping it out.
The timeline on that is measured in months, not weeks. Meanwhile, the UK and wider Europe have been dealing with the very real consequences of constrained jet fuel supply. The question in the market is less about absolute scarcity and more about the time required to restore full capacity.
The disruption to downstream supply chains will persist well beyond any ceasefire, and that certain companies in certain positions will capture those elevated margins in a way that flows through to shareholder returns.
Long-term
The longer-term picture for oil pricing is more complicated.
The UAE’s decision to leave OPEC+ introduces a meaningful dynamic. The well-capitalised producer with significant spare capacity now has both the incentive and the freedom to compete on volume rather than defer to Saudi Arabia’s price management strategy.
Russia, constrained by sanctions and ageing infrastructure, cannot meaningfully increase output. The rest of the group has historically struggled with compliance.
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What this likely means over the medium term is downward pressure on oil prices as the UAE pursues market share, a race to capture revenue before peak demand arrives.
The near-term story and the medium-term story are therefore pointing in different directions. In the near term, structural risk premium plus slow downstream normalisation supports the positions we have taken.
Over the medium term, the supply dynamics of a post-OPEC+ world point toward a lower price environment.
For now, the direction of travel is clear. What remains uncertain is the pace.