What a Prolonged Iran War Could Mean for Energy Stocks

Key Takeaways

• GMO lead portfolio manager Lucas White says the ongoing war in Iran could drive oil prices higher, upending earlier expectations of an oil glut for 2025 and opening the door for an acceleration in renewable energy.
• A prolonged war could lead to a spike in energy prices to over $100 per barrel and inflation. The US is being “super aggressive” to end the conflict and avoid this scenario.
• The conflict stands to accelerate the move toward energy independence and increased use of renewables, according to White.

The outbreak of the Iran war upended oil price expectations, and a prolonged conflict could send massive ripples through the energy markets, according to GMO’s Lucas White. He says the flipside is that elevated oil prices open opportunities to accelerate energy independence and increase the use of renewables throughout the United States.

White is bullish on lithium battery providers such as Albemarle ALB, and he expects traditional fossil fuel names like Petrobras PBR to do well in this environment. “Supply doesn’t get disrupted in a day or two, so this is anticipation,” he explains. “If this were to go on for weeks or months, you can’t block 20%-30% of the world’s seaborne oil and not have some massive reaction.”

The potential blockade of the Strait of Hormuz, which borders Iran and provides passage to a fifth of the global supply of liquefied natural gas, could produce long-term shocks, especially if the war continues for weeks or even into 2027. Lucas says oil prices could rise to over $100 per barrel over the short term and settle in the $70-$90 range over the long term.

On March 3, we checked in with White, who co-manages the Silver-rated GMO Resources Fund GEACX and the Bronze-rated GMO Climate Change GCCHX. The GMO Resources Fund invests in the natural resources sector, including hydrocarbons. The Climate Change fund invests in companies it believes will benefit from efforts to curb or mitigate the long-term effects of global climate change. White spoke about some of the possible directions the war could take, what they mean for oil prices, and the continued push toward energy independence and renewables.

Leslie Norton: Even before the Iran war, what were your expectations for global energy markets?

**Lucas White: **In recent years, you’ve seen growing electricity demand globally. In the US, it’s driven by data centers and increased residential usage from people having heat pumps, electric hot water heaters, charging electric vehicles. Almost half of the growing electricity demand in the US is driven by data centers. Now, not all those data centers are AI. Before AI started getting all the attention, there were lots of data centers for cloud computing and crypto.

Outside the US, data centers aren’t as big a driver, and EVs are a bigger driver of electricity demand growth. Outside the US, you’ve seen electricity prices rise 30%-50% and even more in some countries in the last few years. That trend will continue. It’s a challenge: growing electricity demand, archaic infrastructure, and the need to not just add new power generation but also to improve your electric grids.

Norton: What did all that mean for oil prices?

**White: **We don’t have particular views on oil, because no one can predict where oil prices are going to go. The market expected a glut of oil globally that would keep prices at reasonable or low levels—something in the $50-$60 per barrel range, below the average mid-$70 range of the last 10 years. The thought was that next year, the glut would wear off. With low oil prices, marginal production gets shut down, shale activity slows down, and prices revert to more normal levels.

Norton: Then Israel and the US attacked Iran on Feb. 27. Let’s recap what’s happened.

White: Even before Iran, you had Venezuela in January. And people knew there were issues with Iran. The geopolitical risk premium was getting built in over the last couple of months. With actual war breaking out and chaos in the Strait of Hormuz, it’s taken on a life of its own.

Now, there are real questions about the Strait of Hormuz. Well over 30% of seaborne oil that gets shipped around the world flows through that strait. To have an oil tanker on fire, and to have Iran saying it will attack any vessel that tries to go through, may not be a big deal in the next five days. But if this goes on for five weeks or five months, that’s a pretty big deal. Iran knows that.

So during this period, natural gas really spiked. West Texas Intermediate was bouncing around between the high $50s to around $65. Now it’s in the mid-$70 range. Brent went from around $60 to $70, and now it’s at $82. Supply doesn’t get disrupted in a day or two, so this is anticipation.

**Norton: What’s next, and what does this mean for global inflation? **

**White: **If this were to go on for weeks or months, you can’t stop 20%-30% of the world’s seaborne oil and not have some massive reaction. I think the US is being ultra-aggressive because they can’t afford that situation. We don’t get into predicting commodity prices, and I don’t forecast prices because they’re unpredictable, but I would not be surprised to see oil go over $100 if this went on for a while.

The biggest thing on Trump’s agenda is getting inflation down so that he can do his beloved tax cuts and get interest rate cuts. But if you get involved in the Middle East, in particular with Iran, and you know that that could lead to a spike in energy prices and inflation, you’re probably thinking you have to be super aggressive to try to end this as fast as possible. I have no inside information; it’s just logical.

State Street Energy Select Sector SPDR ETF XLE has risen a bit but is down today, even with oil prices up almost 6%. The iShares Global Energy ETF IXC is down 80 basis points [on Tuesday]. The market is saying it thinks this will be short-term, that even if oil prices are higher for an extended period, it’s now more bearish on global economic activity, which will offset the higher prices.

Norton: Which assets look more attractive because of what’s happening in the strait?

**White: **Assets in the Middle East will be riskier and less attractive to investors, but assets in the rest of the world become more attractive. For most of the world, the Iran conflict doesn’t impact the ability to supply oil, and producers benefit from the higher oil prices. Having Russian and Middle Eastern oil off the market is good for everybody else.

**Norton: Let’s talk about the outlook for alternative energy. **

White: Sentiment surrounding renewables was very poor heading into 2025. Valuations reflected the miserable sentiment. However, companies generally generated strong fundamentals over the year. Public policy support was solidified with the passage of the One Big Beautiful Bill Act, and markets started to recognize the vital role renewables will play in meeting growing electricity demand from data centers, EVs, etc. Clean energy performed extremely well last year and in the first two months of 2026.

Since the Iran war began, clean energy has fallen a bit as the market has struggled. A few factors are likely at play. One, higher energy prices threaten to exacerbate inflation and reduce the odds of interest rate cuts, which would benefit clean energy. Two, with clean energy’s strong performance last year, there was likely some profit taking. Three, clean energy names tend to be smaller cap and higher beta, so you might expect them to fall a bit more in a down market.

Norton: Will this accelerate the move to energy independence?

White: It should. How many times do we have to learn the same lesson? It is precarious to be dependent on natural resources controlled by hostile regimes. How much nicer would it be to have a bunch of solar panels and wind turbines and not have to worry about natural gas and oil? Forget about whether you believe in climate change.

When Russia invaded Ukraine in 2022, electricity prices went up 300% in some areas of Europe, and coal and natural gas prices were through the roof. Renewables activity picked up dramatically, then ran into interest rates being raised to fight inflation. I don’t have good numbers off the top of my head, but I believe solar activity in Europe doubled in the wake of the invasion and has been reverting back to pre-invasion levels. [The EU is expected to have total installed photovoltaic capacity of 671 gigawatts by the end of 2028, up from 269 gigawatts at the end of 2023.]

Fossil fuels will be around for many years, but all else being equal, you’d expect geopolitical conflicts like this to spur some enthusiasm for renewables and underscore how nice it would be to have EVs powered by renewables and storage.

Norton: The US administration is hostile to renewables.

**White: **In the US, there are big discrepancies between the headlines and what’s actually happening. In 2024, something like 94% of new power capacity additions in the US were wind, solar, and storage, or clean energy, according to Wood Mackenzie. So 4% was natural gas, and 2% other. I haven’t seen final numbers for 2025, but it was in the same ballpark. The US is already doing a tremendous amount of renewables.

The negativity about hating renewables, or saying wind turbines give people cancer or kill birds, that’s just political theater. Look at this country even in the last couple of years and over the last decade. Almost all new power capacity additions have been driven by renewables.

Norton: What’s the longer-term trajectory for energy prices?

White: Oil prices tend to oscillate around a level that moves up over time. In recent years, it’s been $60-$80 and has averaged in the mid-$70 range over the last five years. That seems like a normal price expectation when you talk to various oil companies. They say $70 is probably the low end of what would be sustainable. Below that level, production from marginal assets winds down. I suspect oil will average somewhere between $70 and $90 over the next 10 years.

Norton: Let’s talk about stocks you own.

White: In the fossil fuel arena, we’re bullish on Petrobras and Kosmos Energy KOS. We expect very strong free cash flow. If you think oil will be in the mid-$70s on average over the next five or 10 years, these companies will be cranking out 20%-plus free cash flow yields. The S&P 500 when last I looked had a free cash flow yield below 4%. Kosmos is actually up close to 200% this year. It has a lot of room to go further. They have a lot of debt to service and are highly leveraged to oil prices. They’ve restructured a lot of their debt. We think they’ll be survivors. The market is interpreting the most recent oil price move as temporary, and not giving these companies much credit, but in a few years, the $70s for oil will be more permanent, and we think Kosmos will do very well.

On the lithium side, we like Albemarle and Sociedad Química y Minera de Chile SQM. Only a couple of years ago, people thought lithium just revolved around EVs. But energy storage has continued to take off. It’s grown by about 100% a year over the last few years. Energy storage not only helps with EVs, but also with intermittent renewables. You’re able to store excess solar or wind energy for when the sun isn’t shining or the wind isn’t blowing. And it helps you manage your grid. Think how complex and painful it is to manage our grids at every moment in time. If you’re off by a little bit, you risk destabilizing the grid. How much nicer it is if you have the luxury of a lot of energy storage. So [lithium is] rapidly and increasingly being seen as a critical feature for our stressed grids.