The conflict between the United States and Israel and Iran has had a notable impact on global energy markets. Escalation threatens to cause persistent disruptions in oil supplies, increase transportation costs, and raise risk premiums in commodity markets. When oil becomes more expensive for political reasons, oil and gas and defense companies are usually the beneficiaries. But history shows that other industries also profit: insurance, gold mining, and even nuclear.
Tanker fleet and marine insurance
Among the main beneficiaries of oil conflicts are ocean freight operators. Due to the blockade of the Strait of Hormuz, the length of routes increased and the number of vessels available for transportation decreased. This led to higher shipping costs (freight rates). Although the insurance price for large tankers jumped by 10–20 times since the start of the U.S.–Iran conflict, shipping companies reported higher net profits. This is because military risks are covered by the cargo owners, so this item does not affect the carriers’ financial results.
Among the sector’s representatives, you can highlight Cyprus-based Frontline, Bermuda-based Nordic American Tankers, and Belgium’s CMB.TECH. In the first half of the year, the share prices of FRO and NAT increased by more than 60%, and for Frontline, the first quarter became its best period in over 20 years. Its net profit reached $345 million, enabling a 50% dividend increase.
An increase in geopolitical risk automatically raises the cost of insurance for ships traveling through dangerous areas. Additional insurance premiums are received by syndicates, such as Lloyd’s of London in the UK, and by international reinsurers, although at the same time their risk of insurance claims being triggered also increases.
Gold and precious metals
Difficulties in the energy market traditionally increase investors’ interest in defensive assets. Gold-mining companies benefit the most, since their production costs rise significantly more slowly than the price of gold increases. As a result, profits grow faster than the metal’s price itself.
Among the sector leaders are the U.S. company Newmont, as well as the Canadian firms Barrick Mining and Agnico Eagle Mines. In 2020, gold-mining companies received support from both sides: cheap oil reduced their fuel and production costs, and unprecedented money printing around the world increased demand for gold. Against this backdrop, from March to August 2020, Barrick Mining shares rose by 140%.)
Nuclear power and uranium
If a military conflict leads to a prolonged period of high energy prices (especially natural gas), governments begin to pay increasing attention to energy security and the development of nuclear generation.
In this situation, uranium producers win out—above all, the U.S. company Uranium Energy and Canada’s Cameco—as well as sectoral ETFs such as URA and URNM. Investing in these funds suits those who are willing to wait, because developing nuclear power requires a long investment cycle.
Broad raw-material cycle
Together with oil prices, the cost of another raw material often rises due to higher transportation expenses and inflation expectations. You can profit from the development of such scenarios through commodity ETFs, including DBC, PDBC, and COMT, traded on U.S. exchanges and investing in a wide range of commodity futures.
Not the focus
Oil crises bring not only risks, but also new investment opportunities. While some industries suffer from soaring energy prices, others gain an additional boost to growth. That’s why, during periods of geopolitical instability, investors who can look at the market more broadly often find the most interesting ideas in sectors and countries that previously went unnoticed.