Chevron chief executive Mike Wirth warned on May 4 that a closure of the Strait of Hormuz could raise the odds of an oil shortage that looks uncomfortably like the supply disruptions of the 1970s. He made the case at the Milken Institute’s Global Conference, linking a possible shutdown of the waterway to strain on global crude inventories and strategic reserves.
The warning matters now because the Strait of Hormuz remains one of the world’s most important oil chokepoints, and any disruption would be felt quickly in prices and supply chains. But the same shock that would squeeze overseas barrels could lift some U.S.-based downstream and midstream energy firms, which are less exposed to the Middle East flow and more tied to domestic production and exports.
ConocoPhillips is one of the companies named as a potential beneficiary. It has a substantial production footprint in the United States, with much of its portfolio in Alaska’s Prudhoe Bay, the Bakken region of North Dakota and Montana, and the Delaware and Midland Basins in West Texas. Its international production sites are far from the current Middle East conflict, and if oil and natural gas prices rise on a supply shock, the company could sell into stronger demand. Shares are trading at 12 times forward earnings and carry a forward dividend yield of 2.85% at current prices.
Energy Transfer is another name that could gain if the crisis boosts demand for U.S. oil exports. Structured as a master limited partnership, it distributes 90% of its pre-tax earnings to unit holders and currently offers a 6.75% forward dividend yield. The company reduced payouts during the COVID-19 pandemic, but it recently raised its quarterly cash distribution by more than 3%, after targeting annual distribution growth in the 3%-5% range before the Strait of Hormuz crisis.
The tension in the market is that the scenario remains just that: a scenario. There is no confirmed closure, only a warning that even the possibility of one could tighten the balance between global inventories and emergency reserves. For investors, that means the immediate question is not whether oil will spike, but how quickly U.S. producers and transporters can benefit if overseas supply is curtailed.
