Energy prices matter—but the bigger shock may hit other areas that feed into inflation and growth.
With the war in Iran dragging past the original ceasefire deadline, how might the situation impact global energy markets—and other sectors—from here? To cut through the noise, we asked Luke Pryor, Security of the Future Portfolio Manager and Co-Portfolio Manager of Strategic Equities, to share his oil and gas industry expertise.
Q: Why is it so difficult to get a clear read of the damage to global energy infrastructure right now?
A: There are a few overlapping reasons. First, we only see what companies and governments choose to disclose, which limits visibility from the start. But even beyond disclosure, the operators themselves often lack a full assessment.
Large refineries, LNG export facilities, and petrochemical complexes are extremely complicated systems. If a facility is struck, it’s not immediately obvious what matters and what doesn’t. Some components are critical bottlenecks, others are not. Which pipe is vital, and which is redundant? Determining the extent of the damage, how long repairs will take, and whether operations can partially resume simply takes time.
There’s also an element of information management. In several of the countries involved, there are strong incentives not to publicly reveal the severity, whether for reputational, political, or strategic reasons. As a result, information flow looks very different than what investors in other regions might be used to. Finally, even when information exists, decisions about what to share—and when—often favor a phased approach rather than an immediate reveal.
Q: What can we say with relatively high confidence at this point?
A: The most notable confirmed development is damage to Qatar’s Ras Laffan LNG facility, the largest LNG export complex in the world. The facility has been largely shut down since the early stages of the conflict. Thus far, what has been communicated is that a portion representing roughly 3%–4% of global LNG supply is likely to remain offline for three to five years.
That number is much more meaningful than it sounds. It’s seismic. LNG capacity growth is lumpy, but you can ballpark 3%–4% of supply as roughly a year’s worth of global capacity growth.
One mitigating factor is that prior to the conflict, LNG markets were already moving toward what looked like a potential surplus. That cushion matters. Without it, the price impact would almost certainly be more serious over the medium term. Even so, this remains a very material change to the balance of supply and demand.
More broadly, there are reports that 40 to 80 facilities across the energy and petrochemical value chain have been impacted—ranging from upstream and midstream assets to refineries and petrochemical plants. Importantly, oil and gas fields themselves do not appear to have been meaningfully affected. The resources are largely intact; the problem is infrastructure.
Of those impacted facilities, market participants generally believe that five to 10 potentially fall into the category of severely damaged, with repair timelines measured in years. Most of the rest are smaller or less critical assets, where timelines are more likely to be measured in months.
Q: If the geopolitical situation were resolved quickly, how fast could oil and gas markets realistically normalize?
A: There’s a wide range of outcomes, and it’s important to be realistic about timelines. On the LNG side, normalization is constrained by the Ras Laffan damage. That supply is not coming back quickly, regardless of how the conflict resolves.
On the oil side—both production and refining—the estimates span a broad range. At the optimistic end, some believe that once conditions stabilize, a substantial share of production could return within weeks. These countries are experienced at bringing infrastructure back online, and there was some spare capacity in the system heading into the conflict.
At the other end, certain assets could take years to fully repair. A reasonable middle-ground view—and what many would consider a base case—is that perhaps 80%–90% of the disrupted oil production and refining capacity could be restored within roughly three to six months, with the remainder taking longer.
Even in that scenario, logistics matter. Once oil and refined products begin flowing again, it still takes 30 to 45 days for tankers to reach end markets, particularly in Asia and Europe. During that shipping window, inventories continue to be drawn down. As a result, prices can remain under pressure even after conditions start to improve operationally.
Q: If disruptions persist, where do you think shortages begin to show up first?
A: Geographically, the pressure shows up first in Asia, excluding China. Many countries in South and Southeast Asia are fuel importers and source energy directly from the Middle East due to proximity.
Europe tends to feel the impact next, as another large, import-reliant region. North America generally feels it later. The US is a net oil exporter, which helps, but that doesn’t eliminate exposure, especially on the West Coast. Over time, as tanker flows are redirected globally, the effects spread.
We’re already seeing evidence of stress in parts of Asia. Measures like four-day work weeks, fuel rationing, university class cancellations, expanded work-from-home policies, and shortages of cooking fuel have been reported. While difficult to measure precisely, there is credible thinking that 4–5 million barrels per day of demand destruction may already be occurring as a result of shortages and high prices.
The likely exception to this is China, which has been stockpiling oil for years. Although it remains a fuel importer, it now holds historically massive inventories which provide it with a much greater cushion than its peers in case of a prolonged closure. Plus, an ample supply of power from both coal and renewables insulates it from the tightening LNG market. While the country cannot avoid every impact—and a broader global downturn driven by high oil prices would hit China’s many export industries—it’s relatively better positioned than other countries in the region.
Q: From a product standpoint, which fuels tighten first?
A: The tightest products are typically jet fuel and diesel, which are very similar. The global refining system tends to overproduce gasoline relative to those two fuels.
Jet fuel has already become the most expensive part of the barrel in certain markets. Europe and Asia are bidding aggressively for a limited supply. In Europe, that has already translated to flight cancellations. Lufthansa, for example, announced the cancellation of 20,000 flights, and there are realistic concerns that more will be forthcoming if conditions do not improve in the next few weeks.
Rising jet fuel prices also pull up diesel prices, which directly affect industrial production, freight, and logistics. Those effects tend to show up first in Europe and Asia.
Q: Beyond higher gasoline prices, where might US households feel the impact?
A: US gas prices are not immune, but they may actually be one of the more insulated parts of the system. Prices are up roughly $1 per gallon since the conflict began but the more significant effects often appear indirectly.
A useful analogy is the COVID supply chain. Semiconductor shortages weren’t a car problem at first, but they ultimately shut down auto production. Similar dynamics may play out here.
Higher LNG prices can force factory shutdowns in countries where energy is a binding constraint. Pakistan is one example—many textile factories there rely on LNG from Qatar. If production is curtailed, garment exports fall, and months later, consumers in developed economies see higher prices or limited availability for certain types of apparel.
Other examples include fertilizer inputs—which affect food prices, and by extension, other areas—and industrial materials like aluminum. Helium is another critical input. It’s used in semiconductor manufacturing and other advanced processes. Extended disruptions in these areas can ripple through supply chains in ways that are not immediately apparent or predictable.
Q: What would need to happen for oil prices to move materially higher from here?
A: The short answer is that inventories are doing a lot of the work right now—and that buffer is dwindling. The world entered this period with unusually high oil inventories, which provided a cushion that’s already been drawn down.
In terms of reasonable estimates, there may be somewhere around a month of remaining flexibility, assuming current inventory draw rates persist. Before the conflict, global oil demand hovered slightly above 100 million barrels per day, with supply roughly in balance. Today, effective supply may be closer to 90 million barrels per day, with inventories filling the gap.
If inventories can no longer bridge the divide, demand must fall to meet supply. Historically, demand destruction on that scale has required very high oil prices—often on the order of $150–$180 per barrel in today’s terms, and even higher for refined products. In some regions today, physical prices are already approaching those levels, particularly for jet fuel, even if global benchmarks do not yet fully reflect them.
Q: What are the broader macroeconomic implications?
A: Sustained energy price increases are generally stagflationary. Energy is an input into nearly every economic activity. When prices rise materially, inflation pressures intensify while growth slows, as more resources are diverted toward energy.
In our view, there are clear beneficiaries: energy producers, certain petrochemical businesses, and regions tied closely to energy production. But at a global level, prolonged energy stress acts as a meaningful drag on growth.
Q: How is the market currently viewing all of this?
A: Markets appear to be pricing in a relatively constructive outcome: a reopening of shipping lanes, damage that proves manageable, and normalization before inventories become critically tight. Historically, that optimism has often been justified. In prior shocks, the global oil system has shown a surprising degree of resilience, such as during the aftermath of the 2019 Abqaiq attack and the early phases of the Russia-Ukraine war.
That said, more adverse scenarios—like destroying 5–10 million barrels per day of demand, or sustained disruptions to critical non-energy inputs—are not fully priced in right now.
Q: Once the situation stabilizes, what longer-term changes are likely?
A: Several adjustments seem likely. Governments may seek to rebuild strategic petroleum reserves that have been heavily drawn down. Commercial inventory levels may also drift higher over time. Middle Eastern supply could carry a greater geopolitical risk premium, resulting in somewhat higher baseline energy prices than investors were accustomed to before.
We may also see incremental shifts in terms of where new oil production is pursued and increased investment in alternative sources of energy and power. Historically, major supply shocks—like the 1970s oil embargo—have accelerated changes in the energy system. While this is not identical, the parallels are instructive.
Q: How are investment teams approaching portfolio construction in this environment?
A: Our emphasis is on taking risks that can be analyzed and managed, while avoiding large exposures to outcomes that are fundamentally unforecastable. Much of the near-term geopolitical path falls into the latter category.
Portfolios are being designed to remain resilient across scenarios—able to perform reasonably well in an environment of higher inflation and slower growth, while still benefiting if the situation resolves quickly and economic momentum improves. Potential outperformance is more likely to come from identifying longer-term structural shifts than from making short-term directional bets on headlines.
Q: What is the single most important takeaway for investors?
A: There are credible downside scenarios, and they shouldn’t be dismissed. At the same time, history suggests that the global energy system often proves considerably more adaptable than feared. Small facilities that don’t appear in anyone’s Excel model have a way of coming online when prices justify it. Markets are effectively betting on that flexibility today. A balanced approach—acknowledging those darker risks without assuming disaster—is likely the most sensible starting point.
