Oil giant Chevron (NYSE: CVX) has underperformed the broader energy sector by a significant margin, with a return of just 16% for the year. The company has greater exposure to oil prices than some peers – a $1-per-barrel drop in the price of Brent, for example, costs the company $600 million in cash flow.

Continued progress in the Middle East peace talks has had a positive impact on oil prices, however. Since the beginning of the month, the price of Brent crude has fallen by around $15 per barrel to $80, down from $95. This is good news for consumers and economies around the world, but it is bad news for oil producers. The S&P Commodity Producers Oil & Gas Exploration & Production index has fallen around 13% over the same period. The index, which was up 40% at one point this year, is now up just 19% year-to-date.

But now seems like an interesting time to buy into a business that's no longer just about oil. Indeed, Chevron is increasingly becoming a major player in the power business.

Chevron is branching out

Chevron is best known as an oil producer, but its most exciting business is the production of liquefied natural gas (LNG). The company does not break down exactly how much it earns from each facility and production line, but it does break down upstream (oil and gas production) and downstream (refining and trading) earnings. For 2026, UBS has pencilled in $20.4 billion of upstream and $4.3 billion of downstream earnings. Of this, analysts estimate that around 60% of upstream is liquids production, with the remainder gas and LNG.

LNG markets tend to operate differently from global oil markets. Due to the huge sums of capital investment required to set up and maintain LNG facilities, producers have to agree multi-year contracts with customers to guarantee a return. Chevron's flagship Gorgon LNG facility in Australia, for example, cost the company and its partners $55 billion in total.

Of the roughly 4.1 million barrels of oil equivalent the company is expected to produce in 2026, 80% is tied to long-term fixed contracts, with the remaining 20% sold on the spot market. These contracts are fixed, but still influenced by market prices. LNG contracts linked to Brent prices, for example, adjust with a three- to four-month lag. Analysts at UBS reckon that for every $10 rise in the price of Brent, Chevron gets $450 million in after-tax earnings from production from its two major Australian LNG facilities.

Crunching the numbers for LNG cargoes isn't easy for those outside the business. Prices are heavily influenced by natural-gas prices and demand. For example, prior to March, the profit on a single LNG cargo moving to Europe from the US jumped from about $25 million to $50 million as the spread between natural-gas prices in the US and prices for gas in Europe rose due to the Middle East supply shock, according to Energy Flux, an industry news site. While the world has been focused on Brent prices, it's US natural gas that's the important metric for Chevron. It estimates that a $1 move in price will add or subtract $700 million from its bottom line and, due to higher demand, prices have risen nearly 30% to $3.2 MMbtu since the beginning of April.

Chevron also has a smaller facility in Angola, which UBS estimates could generate a $180 million boost in Ebitda for every $2 increase in the price of the European gas benchmark, which is up around $5 per MMbtu in the past six months.

Ultimately, prices are linked to demand, and the LNG market cannot quickly adjust to demand as it can take decades to build an LNG facility. According to Shell, the world's largest LNG trader, demand is expected to rise by 68% by 2040 in the best-case scenario and by 85% by 2050, driven by stronger requirements for electricity. The IEA believes higher demand from electric vehicles and data centres and the like will add the equivalent of two European Unions to the global need for power by 2030 – only half of which will be met by increased renewable-energy and nuclear-power generation.

Chevron's new venture with Microsoft

Chevron has also launched a joint venture with Microsoft called Power Solutions, which will, for the first time, take it into the business of selling power. The first major deal was announced at the end of March and will see the partners develop a $7 billion, 2.5-gigawatt, natural-gas-fired power plant to support Microsoft's data centres. It will be powered by gas from Chevron's assets and will be built with room to double in size to meet demand.

Production should begin in 2027 and Chevron's bottom line is set to see the benefit from 2028 onwards. The business could become a significant contributor to profits over the coming decade, but this is not reflected in the share price. Chevron wants to build power plants producing seven gigawatts over the coming years. Selling power on long-term fixed contracts to the technology “hyperscalers” will add another predictable stream to Chevron's top and bottom lines, reducing the earnings volatility that's dogged the firm in the past.

That should justify a higher multiple and stronger cash returns. Based on current projections, UBS's analysts believe the shares are trading at a forward price/earnings (p/e) ratio of 16.6 for 2027, falling to 15.8 for 2028, assuming a 4% increase in production. The dividend yield is expected to come in at 4% this year and 4.2% next year. Recent declines in the share price could present a good opportunity for long-term investors.

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The Gulf states have been crucial to the global economy ever since the first oil shock in 1974 broke the post-war monetary system and ushered in an era of high inflation. With the world's biggest concentrations of oil and gas in Saudi Arabia, Iran, Iraq, Kuwait and Qatar, and with producers locked into the Opec oil-exporters cartel, which could switch supplies on and off at will, the region held the world's energy supplies in its hands. That gave its rulers immense power and the wealth to buy up a vast range of assets. Interest rates, equity prices and inflation all over the globe were often determined by events in that one small region of the world. It mattered.

That looks to have changed. As the US and Israel attacked Iran, there were plenty of dire warnings that the oil price would go to $150 a barrel, or perhaps even $200. Flights would have to be cancelled as we ran short of jet fuel; petrol would have to be rationed. The closure of shipping lanes would send chemical and fertiliser prices soaring, triggering food shortages and factory closures. The global economy would be plunged into recession. Central banks started to consider an emergency response.

In the event, none of that happened. The price of oil did go up sharply, rising from $60 a barrel to close to $120 shortly after the conflict started. But rather than spiralling out of control, it steadied and then started to fall again, dropping below $80 as Iran and the US agreed a 60-day ceasefire at the start of this week. There is little sign of food shortages, or any basic commodities running low, and there are still plenty of cheap flights available. Most of the European economies are sluggish, but that is for a whole host of reasons. They have not collapsed and the US is still doing well, with strong growth, plenty of new jobs and the stock market hitting record highs. Inflation has ticked up a little, but should come back down again as the price of oil falls.

In reality, the Gulf states just do not matter as much as they used to. There are three big reasons for that. To start with, there is a lot more oil in the world than there used to be. Despite all the catastrophic warnings during the 1980s and 1990s that the world would have run out of the stuff by now, there seems to be more of it than ever. The US has turned itself into both the largest producer and net exporter of oil in the world, largely because of fracking. Despite all the fear-mongering, more countries, such as Argentina and Mexico, are developing their own shale oil and gas reserves. After the US strikes on the country, Venezuela will start to restore its oil fields and it has the largest reserves in the world. Far from running out, there will soon be too much oil. The Gulf can't hold the world to ransom when the global market is awash with oil.

Why the Gulf states' money is no longer so important

Second, alternative energy is rising in importance all the time. We can all debate whether the drive to achieve net-zero is too rapid, but there is no turning back the clock to the fossil-fuel era now. China's huge electric-vehicle industry is not going to disappear, and most open car markets will be electric within a decade or so. Renewables account for 45% of electricity generation across the EU and already for 25% in the US, the world's largest economy (and that share is rising fast, with solar last month overtaking coal as a source of power). Oil is a shrinking market.

Finally, Gulf states' money is no longer so important. Dubai and Qatar will take time to recover from the bombing campaign launched by Iran. A lot of money invested around the world will have to be brought home to pay for reconstruction and cover losses. The region's wealth funds won't be splashing billions on trophy assets as have done for the last 20 years. In a world where Wall Street is minting space- and AI trillionaires, there is a lot of spare capital around. The Gulf states won't matter so much. Add it all up and one point is clear. The main lesson from the Iran war is that the Gulf states' influence has evaporated. They are part of a small region, which no longer matters very much except to the people who live there. Investors will still have plenty of things to worry about – but the Gulf states and their oil resources can be dropped from the list.

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You might expect the £219 million Guinness Sustainable Energy Fund to have performed poorly in recent years, given the dreadful performance of renewable-energy infrastructure funds. Far from it: the fund returned 18% in 2025 after losing 17% in the previous three years, but returning 150% in the three before that.

That is because its portfolio is much broader. While the renewable infrastructure funds invest in just a few energy-generation projects, the Guinness Sustainable Energy Fund is spread across quoted companies in the equipment, efficiency, electric vehicles, power generation, batteries and infrastructure sectors.

Last year's returns were due to improving policy clarity, lower interest rates and surging power demand, not just from data centres and digital infrastructure but also from transport, building, industry and the re-shoring to the US of manufacturing, says co-manager Jonathan Waghorn. “Global investment in clean energy in 2025 was $2.2 trillion, twice as much as in fossil fuels, reflecting the fact that renewable energy is the cheapest form of electricity in most situations,” he notes. “Growing power demand has taken over from decarbonisation as the central secular theme.”

Capitalise on the rising demand for electricity

The International Energy Agency forecasts that electricity demand will grow at 3.7% in 2026 – well above the 2015-2023 average of 2.6% – and at 4% per annum thereafter. AI and data centres currently account for 4%-5% of US power demand, but this will grow to around 12% by 2030. Electric vehicle (EV) sales are expected to increase by 4 million to 25 million in 2026 (when they will make up 29% of total sales). Battery prices fallen 93% since 2010, but are likely to drop significantly further by the 2030s. In China, which accounts for 60% of global sales, EV sales are already over half the total. In the US, they are just 10% (against 20%-25% in Europe) due to cheap gasoline and range anxiety in a country where driving distances are longer, but this is expected to increase to 45% by 2030. Policy support has been inconsistent but changes in Donald Trump's “One Big Beautiful Bill Act” last year were not as adverse as many feared.

China added 430GW of renewable capacity in 2025, more than the rest of the world put together, and hit its 2030 target six years early. Approvals for new coal-powered plants have slowed – Waghorn says that global coal-fired generation is at a peak and expects it to halve by 2050. He expects gas-fired generation to continue to grow until 2040, then decline slightly. Renewable energy's market share of energy demand will increase from 15% to 40% as electricity's share of total energy increases from 25% to 40% in 2045.

“Given the growth in electricity demand, it is no longer about renewables or fossil fuels, but about both,” says Waghorn. “Not only is renewable capacity cheaper but costs are falling and lead times for installation are shorter than for gas, whose costs are rising. Gas-fired generation will still have a very important role, providing base load capacity and smoothing out the intermittency of renewable energy. Nuclear power will be slower to expand as expertise needs to be built up.”

“There is significant scope for energy efficiency gains, enabling overall demand growth to slow from 2% to 1% per annum long term.” Growth in electricity demand requires a doubling in expenditure to $600 billion per annum by 2030 and a further increase to $800 billion by the 2040s. “Much of the Western world's power grid is 40-50 years old, and over half of US grid transformers are 30 years old. Estimates point to a doubling of the global power grid by 2040.”

All this adds to the investment opportunity, reflected in the breadth of the fund's portfolio. It makes the funds focused solely on renewable energy projects – with high sunk costs and facing falling wholesale prices – look stuck up a cul-de-sac. Despite this, the portfolio still trades on a 12% discount to the broader market – with higher earnings growth, estimated at 12.7% per annum in 2024-2027 and above that of global markets, there is surely plenty more upside to go for.

An energy fund for a world that still needs oil

The oil and gas sector was a popular contrarian tip for 2026, largely because it had performed so poorly for so long. With the Brent oil price stuck at $65 a barrel, the dollar weakening, demand weak and plenty of potential additional supply visible, the argument for the sector did not look compelling. Yet the Gulf war changed all that, with the oil price surging to over $100 a barrel. Oil and gas companies are back in favour, with the Guinness Global Energy Fund returning 41% in sterling in the first quarter. So is it too late to jump in?

Oil looks expensive relative to recent prices but it was a “cheap commodity and at a 100-year low relative to the gold price”, says co-manager Will Riley. “The world was paying just 2% of GDP for its oil compared with a 30-year average of 3%, and 5% in 2012.”

The International Energy Agency has reduced its estimate for growth in demand from 0.73 million barrels per day (bpd) in 2026 to an average fall of 80,000 bpd. In the longer-term, oil demand, which stood at 104 million bpd in 2025, was previously forecast to peak at 107 million bpd in the 2030s. That peak may be brought forward if higher prices now provide an incentive to shift from oil at the margin, but demand is expected to decline only slowly.

The closure of the Strait of Hormuz theoretically prevents 20 million bpd of oil and 10-11 billion cubic feet of gas per day reaching markets. Alternative pipelines can transport some of this oil, but only some. While high prices will stimulate new investment – both in new production and new transport infrastructure – that will take time. There is no simple alternative to replace Qatar's 20% of global liquefied natural gas (LNG) production, for example. On a longer time scale, there is potential for additional oil and gas supply around the world, which can partly offset the depletion of existing fields. This includes Venezuela, which has the world's largest oil reserves and whose heavy (and costly to extract) crude has a breakeven point of at $80 a barrel, estimates consultancy Wood Mackenzie. However, “under-investment, infrastructure decay, sanctions and loss of technical capacity will take years to rebuild even if political stability and foreign investment returns”, notes Riley.

The Guinness Global Energy Fund had returned a respectable 9% in sterling last year, before oil prices rose – comfortably ahead of the sector, though it had lagged badly over five and ten years. This explains why the fund had shrunk to £125 million, though it is now up to £240 million. Last year's performance was driven by the focus of companies on cash flow and returns on capital, says Riley. Integrated European majors, notably BP and Shell, have been good performers “as they tilted away from renewable energy to fossil fuels”. Canadian companies have also done well as the government U-turned towards fossil fuels.

At the start of the year, the Guinness Global Energy Fund portfolio was trading on a trailing price/earnings (p/e) ratio of 12.8, a 40% discount to global equities, with little prospect of growth in earnings and cash flow if prices remained flat. However, an $80-$90 Brent oil price will add 65% to earnings, says Riley. Even after recent share-price gains, that will bring the fund's p/e ratio back down to about 13 times, compared with a long-run average of 15. Rising earnings also enable firms to pay down debt while distributing higher dividends, making share buybacks and still funding more investment.

The crucial consequence of the Middle East crisis is that the world has been reminded of the risks of supply disruption. This is likely to result in significant investment in new production to reduce dependence on the Gulf, actively encouraged by governments. That is good news for oil and gas companies with the necessary capital and expertise. Professional investors, who neglected the sector for so long, will be looking for an opportunity to invest. So should retail investors.

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A global energy crisis is emerging, following a similar pattern to the Covid pandemic. Then, impending disaster could be seen approaching from a distance. In January 2020, the Chinese city of Wuhan was locked down. In early March, Italy followed suit. Two weeks later, Boris Johnson announced a nationwide lockdown in Britain.

Emerging Asia is already in the throes of an energy crisis. Sri Lanka and Bangladesh are rationing fuel. The Philippines has implemented a four-day work week for civil servants. Egypt has imposed a 9pm curfew for shops and restaurants. Could similar pain be heading for Britain?

For all the grumbling about more expensive petrol, daily life in Europe hasn't yet been much affected by the closure of the Strait of Hormuz, says The Economist. But the last tankers to leave the Persian Gulf before the war began have now reached their destinations. No more fuel is on the way. Strategic stockpiles are being drawn down. Even if Hormuz reopened today, a cumulative loss of about 5% of annual global oil output now looks baked in, a figure that could double if the strait remains closed. The last time oil demand fell by 10% was during the Covid-19 lockdowns of 2020.

How are markets reacting to the energy crisis?

Brent crude oil hit $115 a barrel on Wednesday, its highest level since the summer of 2022 and a 90% rise since the start of the year. While oil futures have risen, markets remain “strangely sanguine” given the huge scale of supply destruction, says Liam Denning on Bloomberg. Oil prices for 2027 delivery are up a modest 17% since the war began.

It could take years to undo the damage that has already been done to global inventories. And with “two blockades” in place and little progress on peace talks, it is still far from clear when the strait will reopen. A survey from the Federal Reserve Bank of Dallas reports that four-fifths of US oil executives now don't expect traffic in the strait to return to normal levels before August, with 40% thinking it won't happen until November or later.

Stock traders optimistically expect everything to be resolved soon, but energy experts and commodity traders are far more alarmed, says Robert Armstrong in the Financial Times. “Horror stories” about the prices paid to deliver diesel to Asia are rife. Those prices are sucking scarce global barrels away from European ports.

Uncertainty levels are through the roof – even the geopolitical “pointyheads” don't have a clue what the outcome will be from US-Iran negotiations. Energy traders, who usually profit from volatility, hate the uncertainty created by Donald Trump's Truth Social posts, which are impossible to predict and cause markets to swing wildly.

There is a growing “disconnect” between “buoyant” stock prices and a real economy suffering energy shocks, says an article by Edmond de Rothschild Asset Management. On a relative basis, the US and China look better placed to face the coming energy crisis than Europe or Japan. “Behind the facade of market rebounds, the “economic fundamentals” are slowly “deteriorating”. Investors “need to stay invested but without being led astray by illusions”.

How the energy crisis is affecting the Persian Gulf region

World markets have “lost their fairy godmother”, says Ambrose Evans-Pritchard in The Telegraph. The Gulf states boast vast sovereign-wealth funds – valued at $5 trillion – representing years of accumulated oil profits. Most of those funds have been invested in Western assets, keeping government borrowing costs low and “turbo-charging excesses in US private credit”. Yet with problems to solve closer to home, the region's monarchies are about to tap those rainy-day funds.

Signs of stress are apparent. The wealthy Emiratis have reportedly raised the topic of securing an “emergency dollar swap line” from US Treasury secretary Scott Bessent, to the “consternation” of those who believe in “America First”. Swap lines are a “backbone of the global dollar system”, says the Financial Times. They see central banks or finance ministries swapping currencies at times of financial stress, when demand for US dollars often surges. Swaps prevent financial panic from spreading and are reversed once the crisis passes.

Gulf states boast large foreign reserves and are unlikely to face liquidity stress. But swaps might help “avoid financial market disruption”, says Stephen Paduano of Oxford University. Gulf sovereign-wealth funds have ample stock and bond holdings, but selling those to raise quick cash “could cause a stock market rout” and stress the US Treasury market.

“Emirati officials haven't made a formal request for a swap line,” says The Wall Street Journal. Discussions are only “preliminary”. The idea may not be so much a request as an “implicit threat” to the global role of the US dollar. The US Treasury has been warned that if the Gulf runs short of dollars “it may be forced to use Chinese yuan” for oil sales instead.

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Charles Jillings, co-fund manager of Utilico Emerging Markets Trust, discusses the outlook for emerging markets and the long-term investment opportunities in infrastructure and utilities.

In this episode of MoneyWeek Talks, Andrew Van Sickle speaks to Charles about how emerging economies are dealing with Donald Trump's tariffs, the after-effects of the war in Iran, and why countries like Brazil and the Philippines are overlooked markets.

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MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

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A few years back, Aliko Dangote, Africa's richest man and an ardent Arsenal FC fan, reluctantly abandoned his dream of buying the London club – saying he had no “excess liquidity” because he was channelling everything he had into his biggest project yet: the continent's largest oil refinery.

That act of self-discipline is now richly rewarding Dangote, says The Economist. Since the start of the war with Iran, his phone hasn't stopped ringing with offers for his gasoline, diesel and aviation fuel.

“People are ready to pay anything now,” he says. Aliko Dangote's $20 billion refinery complex, which spans “an area nearly half the size of Manhattan” outside Lagos in Nigeria, can process 650,000 barrels a day. It is by far the largest scheme owned by the Dangote Group, the cement-to-sugar conglomerate behind his estimated $28.5 billion fortune. But Dangote, 68, suggests it symbolises something more: seeing the plant as a clarion call for the continent to become more self-reliant. “If we Africans don't lead in the industrialisation of Africa, Africa will never industrialise.”

“No one should confuse the tycoon with an altruist” – Dangote's many critics argue he milks state-backed monopolies in several essential sectors, now including oil. Still, the refinery is “a macroeconomic feat as well as an industrial one”. Last year the International Monetary Fund estimated that, if run at full capacity, it would boost Nigeria's non-oil GDP by 1.5% between 2025 and 2026, and boost official dollar reserves by $5.5 billion annually. Double that, says Business Day Nigeria: Dangote has just announced plans to expand capacity to 1.4 million barrels per day and is also scaling up the group's fertiliser and polypropylene plants. The refinery has blown apart a bad trade for Nigeria, says Business Insider. For decades, it was forced to export its crude – and then spend billions importing refined fuel.

How Aliko Dangote built his billions

Trading runs in the family. Aliko Dangote's great-grandfather, as he told Time in 2014, was “a kola nut trader, and the richest man in West Africa at the time of his death”. His own father was a businessman and politician, though he was raised by his grandfather. “It's traditional in my culture for the grandparents to take the first grandchild and raise it. I had a lot of love, and it gave me a lot of confidence.” After studying business at Al-Azhar University in Cairo, he started trading himself in the 1970s – eventually gaining “exclusive import rights” for cement, sugar and salt, says The Economist. Generations of influence helped. At the turn of the century he started making cement, and Dangote Cement “became the concrete foundation of his fortune”. The move into oil refining promises to be just as transformative.

Aliko Dangote is still the only African among the world's 100 richest people, according to Forbes. He has appointed his three daughters – Fatima, Mariya and Halima – to head key operations across his group, while honing his contacts at events such as Davos – Cherie Blair is an independent director of the group's board. Mild-mannered and courteous in person, Aliko Dangote has a tendency to lecture other wealthy Nigerians on their responsibilities, says Business Insider, especially those seduced by luxury consumption.

“If you have money for a Rolls-Royce, you should go and put up an industry in your locality… or wherever you feel there is a need.” No wonder he puts backs up.

But Aliko Dangote has done Nigerians a real service, says Feyi Fawehinmi in the FT. Since coming online in 2024, his refinery has saved the country “dollars and dignity”. Fuel shortages have long been an “obsession” in Nigeria. But “when supply is reliable “both the economy and the national mood shift”. Dangote's great contribution has been “the quiet revolution of availability”.

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The war in the Middle East has created a global oil and gas supply shock, similar in scale to the crisis unleashed in 2022 when Russia invaded Ukraine and cut off Europe's gas supply.

In some regards, this conflict threatens to have an even bigger impact on global hydrocarbon markets if it persists. As countries turned away from Russian gas supply in the months and years after the beginning of the Ukraine conflict, buyers turned to Middle Eastern suppliers of liquefied natural gas (LNG) to replace Russian imports.

At the beginning of the year, LNG shipments from Qatar and the United Arab Emirates (UAE) accounted for about 20% of global LNG supply, but these supplies have now been cut out of the market due to the de facto closure of the Strait of Hormuz.

As supply has been cut off, buyers have rushed to secure new cargoes, paying huge premiums. Building facilities to convert natural gas into the super-cooled liquid product isn't for the faint of heart. These plants can cost around $10 billion for a mid-sized facility, although most producers build as large as possible to achieve the best economies of scale.

As a result, price tags of $50 billion-plus are common. The scale of these projects means that most output is sold on long-term agreements before production even begins, so backers know they have a return on investment before committing billions.

About 70% of LNG output globally is sold on long-term contracts, making it hard for buyers who have now been forced to look elsewhere to secure the energy they need. Prices have spiralled as a result. The price of natural gas in Europe increased 70% in a week after the conflict began.

Venture Global is the fastest gun in the west

Enter Venture Global (NYSE: VG). Founded by former banker Mike Sabel and lawyer Bob Pender just over a decade ago, the company has grown from nothing into one of the largest LNG producers in the US, which itself has surpassed Australia and Qatar as the biggest exporter of the fuel.

Venture Global's founders (who still own around half of the company) looked at the cost of building traditional LNG facilities and set out to take a different approach. They modified the design to focus on smaller modular units, which allows factories to fabricate pieces off-site.

The industry was sceptical, but Venture soon proved its doubters wrong. Its inaugural project, Calcasieu Pass, went from a final investment decision in 2019 to exporting fuel in just 29 months, making it one of the fastest LNG plants ever constructed (although, like most LNG projects, it busted its budget to the tune of $1 billion).

Venture plans to become the second-largest LNG producer in the US, behind only peer Cheniere Energy, which produces around 60 million tonnes per annum (Venture has plans to produce a little over half of that). A total of 90% of this is sold on long-term contracts. The total global supply forecast is expected to rise between 460 and 484 million tonnes in 2026 due to new capacity from the US and Qatar.

Unlike Cheniere, Venture has only fixed 70% of its sales. That leaves 30% to sell at the spot market, which could produce a windfall for the business. Indeed, management has said that a $1.00/MMBtu change in fixed liquefaction fees – the spread between the cost of purchasing natural gas in the US and selling LNG abroad – will impact full-year 2026 adjusted Ebitda by $575 million-$625 million.

The company has said it expects full-year Ebitda of $5.2 billion-$5.8 billion, assuming a fixed liquefaction fee range of $5.00- $6.00/ MMBtu. Following the recent turbulence in the market, the spread between US Henry Hub (the US natural-gas benchmark) and European TTF/Asian JKM benchmarks has jumped to as much as $15/MMBtu.

Venture's decision to leave 30% of production available for sale on the spot market could prove profitable this year, but the market has not factored this windfall into the company's valuation. Based on estimates compiled by analysts at investment bank UBS, the stock is trading at a forward, 2026 price-to-earnings (p/e) multiple of just 9.6.

These figures were compiled alongside the company's results for the fourth quarter of 2025, released at the end of February, before the recent conflict began. Based on the company's fourth-quarter outlook and long-term output growth projections, UBS had pencilled in revenue rising from $11 billion in 2026 to nearly $19 billion by 2029, with net income roughly doubling over the same period. All of these numbers are out of date, but they provide a good indication of Venture's estimated growth in a “normal” market.

One of the reasons Venture is so cheap, and has always been since its IPO in early 2025, is related to lawsuits hanging over the firm. In 2022, after the Ukraine war sent gas prices skyrocketing globally, Venture rerouted some of the cargoes destined for its customers with long-term supply agreements, such as Shell, BP and Repsol, to other customers willing to pay higher prices on the spot market. Those traders left out of pocket sued, claiming as much as $6 billion. Over the past few months, after several years of arbitration, the clouds have started to clear. While Venture lost a case with BP, it has won cases against Shell and Repsol, removing a lot of uncertainty.

Don't fear the debt

Another factor that appears to be acting as an overhang on the stock is the company's debt. At the end of 2025, it had a net debt-to-Ebitda ratio of five, leaving little room for manoeuvre. However, with a cash injection expected this year, thanks to the impact of higher natural gas spreads, the company has the opportunity to make a material dent in these liabilities. The stock looks like a promising play on the brewing energy crisis.

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What's happened in the war on Iran?

The US-Israeli war on Iran, and Iran's military response – and the de facto closure of the critical Strait of Hormuz chokepoint – have shaken financial markets across the world. The war has sent oil and gas prices soaring and stocks falling (unless you're a big oil company; Shell hit record highs) and shaken up expectations of future growth (down), inflation (up) and interest rates (up). In the UK, consumers saw fuel prices jump and mortgage lenders scrambling to pull fixed-rate offers, while wholesale gas prices surged by two-thirds – soon to feed through into higher domestic bills. Even if the conflict remains relatively contained, it is already bad news for the global economy and will affect different regions in different ways, with net energy importers (such as the UK and Europe, and much of Asia) hit worse than net exporters (such as the US).

Why is the Strait of Hormuz so important?

The Persian Gulf and its immediately adjoining lands contain the world's greatest abundance of hydrocarbons and four of the world's five biggest oil fields (in Saudi Arabia, Kuwait and Iran) ship their product out through this narrow stretch of water. According to trade analysis firm Kpler, 31% of crude oil passed through Hormuz last year, along with 34% of global fertiliser supply and 32% of methanol, for example. The Strait's closure caused wild gyrations in the oil price this week. There were double-digit surges and falls according to events and to the latest capricious musing from the US president about his take on the war.

What about gas?

Arguably of even more pressing interest to the UK is the fact that 24% of natural-gas liquids and 19% of liquefied natural gas (LNG) also passes through the strait. Britain is at the start of a historic shift from reliance on domestic and Norwegian gas to far greater imports of Qatari gas (that is, from within the Persian Gulf, projected to make up a bigger chunk of the mix than North Sea gas by 2035). Prices of petrol and diesel have nudged up at the pumps, but wholesale gas prices are up around 60%, and will soon be feeding through into household bills and business costs. Nor is it just hydrocarbons and related products, says Neil Shearing on Capital Economics. Crises such as this have a habit of revealing chokepoints that were previously hidden. Qatar produces 40% of the world's helium, for example, crucial to the production of semiconductors.

Which economy will be worst affected?

The Middle East itself will be worst hit economically, as well as in lives lost and communities destroyed. During the 12-day war last summer, Israel's economy contracted by around 1% in the second quarter. If the present conflict is short-lived, a fall in output of a similar order of magnitude would seem plausible for both Israel and the Gulf economies. Iran itself might expect a fall in GDP of 10%. Otherwise, the region most exposed is the world's biggest growth engine, Asia. The Gulf supplies 40%-80% of the seaborne crude imports of China, India, Japan and South Korea, notes The Economist. It also accounts for nearly a third of China's LNG imports, more than half of India's and even more for some smaller Asian countries. Last year, 87% of the crude and 86% of the LNG passing through the Strait of Hormuz went to Asia, making any prolonged closure a grave threat to the region.

Will global GDP fall due to the war on Iran?

Yes, but unless the conflict spirals into a wider regional war in which oil supplies are severely disrupted for a prolonged period, then most forecasts cluster around a moderate global slowdown (of less than 1% of global GDP) rather than a catastrophic collapse. But the situation is extremely hard to predict. In the event of (say) a months-long closure of the Strait of Hormuz, major damage to Gulf oil infrastructure and oil prices rising towards $150 – unlikely, but not impossible – analysts suggest a knock to global GDP of up to 3%. While oil-sector experts are panicking, macroeconomists remain relatively sanguine, says Paul Krugman on Substack.

Partly that's because the US and other major economies have changed greatly since the 1970s. “They have become much less dependent on oil, and they are probably much less prone to experiencing inflationary spirals in the aftermath of an oil-price shock.”

How long might the war on Iran last?

“My bet: longer than you would wish,” says Rana Faroohar in the Financial Times. While Donald Trump has reason to want a quick end to the conflict, given the lack of clear objectives and the political damage from rising petrol prices, the Iranian regime has “arguably much to gain by prolonging the pain with drone strikes and attacks on neighbours in the Gulf. These would further disrupt energy markets, driving inflation higher across the world”. As analyst Luke Gromen put it in a recent newsletter, “Iran does not have to defeat the US military; it just has to defeat the US Treasury market”.

What should we expect next?

As the experience of the Ukraine war showed us, “inflation is not a single punch”: it hits first in fuel, then in food and other consumer sectors. Meanwhile, China, easily the largest purchaser of Iranian oil, may yet “leverage its own geo-economic advantage of having purchased ports all over the world” and of “controlling most of the ships on the planet”. Higher shipping costs spell more inflationary pain. And potential bond-market weakness is made worse by more government and corporate bonds being held by short-term, price-sensitive investors than in the past. All this makes it easy to imagine a rapidly unfolding US and global markets crisis. If the longer-term impact of Trump's foreign adventures is to “push up bond yields, inflation (which will only be partially mitigated by America's own domestic energy supply) and US deficits and ultimately trigger a big Treasury sell-off, the US and global economy will suffer mightily. I suspect, sadly, that this war and this market story will be with us for some time”.

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Where are the safe-haven assets in a crisis? The answer has rarely been murkier. Gold is the usual place to wait out market shocks, but it has struggled for direction since US-Israeli strikes began on Iran on 28 February.

Gold's problem is that it had already risen 20% this year, leaving it “overextended” heading into the conflict, says James Mackintosh in The Wall Street Journal. That made it “an obvious asset to sell” for traders looking to raise quick cash.

“It's hard to overstate just how unusual” trading has been during this war. When stocks fall, gold and bonds usually rise. This time all three assets have fallen, a historical rarity. Where else to hide? “Defensive” stocks (think utilities and consumer staples) usually outperform at times of market stress, says Niket Nishant for Reuters.

Not this time. European consumer staples fell 4.5% last week, worse than the 3% drop on the wider Stoxx 600 index. Traditional safe-haven currencies haven't fared any better. The Swiss franc and the Japanese yen both sold off as bombs dropped on Tehran.

So far, the only traditional safe-haven asset to have done its job is the US dollar, up nearly 2% against a basket of other currencies over the past month. That reflects the fact that as an energy-exporter the US is less exposed to oil shocks, but even this comes with an asterisk. Investors are loading up on “short-term dollar cash” but want nothing to do with long-term dollar assets such as US Treasury bonds, which also slid.

Gilts – traditional safe-haven assets – have been clobbered

UK gilts “suffered their worst week” since the 2022 pension fund debacle, says the Financial Times. Two-year German bonds had their worst week since 2023. That reflects two risks. Firstly, that higher energy costs will raise inflation and delay interest-rate cuts. Pricing shows that traders now put only a 50-50 chance on one Bank of England quarter-point rate cut before the end of the year, compared with the two cuts expected a few weeks ago.

Secondly, concern that a serious energy shock could pressure the Treasury to spend “billions of pounds in new support measures”. While all bonds have sold off, gilts have recently been underperforming French, German and US government paper, partly because the UK is especially dependent on imported energy. When investors took fright in March 2020, they thronged into US Treasuries (and other sovereign bonds) to wait out Covid, says Matt Zeigler in Panoptica Money.

But since then, the hierarchy of “safety assets” has been “fundamentally reordered”. The decisive event was the removal of key Russian banks from the SWIFT banking system in 2022. Holders of “surplus capital” in Asia and the Gulf realised that what “happened to Russia could happen to them”. They are now choosing to forego dollar-denominated assets such as Treasuries when choosing where to stash their wealth.

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It is a bizarre legal action. Jerome Powell, the chairman of the Federal Reserve, the US central bank, has been prosecuted over renovations of the Fed’s headquarters and may now face criminal charges. Given that it manages an economy worth $30trillion and the world’s reserve currency, it is hard to see that the $2.5billion spent on improving the Fed’s offices really matters much. Even so, Donald Trump has clearly decided to use it as a weapon for a full-scale assault on a Fed chairman he would prefer to get rid of.

Powell himself was clear that the legal attack was just a way of bringing the Fed to heel. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preference of the president,” he said in a statement. In other words, it is a political attack on the Fed and an attempt to allow the president to control monetary policy. If Powell is removed from office by the courts, whoever is appointed to replace him will clearly be taking instructions directly from the White House.

That is a dramatic and dangerous development. This is not to deny that independent central banks are worthy of criticism. Over the past 30 years, they have become too powerful, too confident in their own abilities and too quick to print money. You can make a case that, instead of ensuring greater stability, which is what they were meant to do, independent banks have inflated a series of asset bubbles, indulged spendthrift politicians and prioritised trendy causes while allowing industry to be hollowed out. There is a case for reform. Still, there is a big difference between that and a power grab to hand the right to set rates to the White House.

There are two big problems with that. First, it looks as if Trump is determined to control interest rates himself, either directly, or else through a tame proxy at the Fed. That is not without precedent. In Britain, interest rates used to be set by the chancellor, but the result was that the UK had one of the worst records on inflation in the world before Gordon Brown made the Bank of England independent in 1997. And it is hard to think of a worse person to set rates than Trump. He is temperamental, he constantly changes his mind, he doesn’t listen to advice, and his falling approval ratings mean he will constantly try to cut rates to boost short-term demand. Even more seriously, if the president acquires the right to set rates, it’s hard to see how it will ever be given up. It is too major a power to surrender. The US will have a politicised monetary policy permanently.

How bad will it get under Trump?

Everything else the president is doing appears designed to stop the free market working and drive up prices. The US has already imposed the steepest tariffs since the 1930s, with an average levy on imports of 18%. Closing off its markets to global competition will only drive prices higher and quality down. Only last weekend, Trump promised to cap credit-card interest at 10%, the kind of populist policy you would expect from the far left. Trump has also started capping corporate investment in the housing market. He is directing the oil companies to invest in Venezuela regardless of whether there is an investment case for it or not (with oil at $50 a barrel, there probably isn’t). There does not appear to be a coherent plan, but a whole series of interventions to create markets rigged by the government. State-controlled economies always end up with higher prices.

Add it all up, and one thing is clear – sooner or later the US will see a major rise in inflation. How bad will it get? There is no way of knowing for certain, and it will depend on what else is happening in the global economy. But once prices start to rise we know they are very hard to bring under control again. And if US prices rise, that will drive global prices higher. We can expect inflation to spread to Britain and the rest of Europe very quickly. Investors are already positioning themselves for that, with the price of gold hitting record highs every week. Prices of defensive assets will inevitably go a lot higher.

How did the protests in Iran start?

The latest protests in Iran started with the bazaaris – the normally conservative Tehran merchant class who, two generations ago, were the financial backbone of the 1979 Revolution. On 28 December, shopkeepers in the capital’s Grand Bazaar went on strike in protest at the government’s handling of the nation’s collapsing economy – and their own inability to trade due to the volatility of the currency and inflation. Other businesses swiftly followed, and protestors took to the streets in a wave of protest that rapidly spread to all parts of Iran. Thousands have since been killed in a brutal crackdown by the regime. After a year of economic crisis made worse by the wave of US and Israeli air strikes in the summer, president Masoud Pezeshkian had nothing to ease the sense of a failing government and state when he gave a candid speech in December admitting that he had no solutions and the country was “stuck”. “If someone can do something, by all means go for it,” he told students in a speech that went viral.

What’s happening in Iran's economy?

Last year, the rial lost 45% of its value (crashing to an all-time low against the US dollar), destroying the purchasing power of Iranians. The official inflation rate was 43% (higher than anywhere except Sudan and Venezuela) – taking the price of everyday staples such as bread beyond the reach of some, and hitting even relatively well-off Iranians hard. The economy shrank last year by 1.7%, battered by lower consumption and interrupted oil output from the 12-day war with Israel, with a sharp 2.8% drop expected this year (according to World Bank forecasts). Unemployment is very high in a country of 90 million people, with some estimates putting the employment rate at just 41%. Around a fifth of the population is living below the World Bank’s poverty threshold. Parts of society are experiencing food shortages, due to poverty, while chronic water shortages after five years of drought have added to the sense of desperation – as has the blow to national prestige from the fall of Shia allies and clients such as Assad in Syria and Hezbollah in Lebanon.

What does this mean for Iranians?

All this created the conditions for urban youth and rural workers – frustrated by stagnant wages, lack of jobs and declining life prospects – to join the expanding protests. There is still notable support for the regime and a very divided opposition, which makes imminent state collapse or revolution unlikely, according to most analysts. However, the economic crisis is viewed by most Iranians as part of a wider systemic failure – combining mismanagement, entrenched corruption, a bloated public sector and lack of private investment, elite capture of key sectors (especially by state security actors), and the effects of long-running sanctions.

How have sanctions affected Iran?

The economy has been strangled by ever-tightening Western sanctions since 2012, when then-US president Barack Obama ramped up the pressure over Tehran’s nuclear programme and convinced the EU to follow suit. With Iran cut off from the Swift global payments system, the rial slumped, inflation soared, investment declined, and Iranians felt worse off. That year saw Iran’s first significant contraction since the early 1990s, and since then “growth has been essentially half the rate it was up until that point”, says Esfandyar Batmanghelidj of the Bourse & Bazaar Foundation think tank. Between 2000 and 2012, average annual growth remained steady at 4.4%. Since then, it’s been 1.9%.

What about Iran's oil?

Since the 1979 revolution, Iran has relied heavily on oil and gas exports. They have long funded the state, paid for imports and sustained social spending. In good years, when oil prices were high and exports flowed, growth followed. In bad years, the economy contracted sharply. This dependence leaves Iran unusually exposed to geopolitics. As such, Iran’s fortunes have tended to rise and fall with sanctions regimes and diplomatic turns rather than domestic productivity gains. Each major shift in foreign policy – whether a nuclear agreement or its collapse – ripples through household incomes.

How does foreign policy affect Iran's economy?

After Iran signed its nuclear deal with the US and other world powers in 2015 – sanctions relief in exchange for tight restrictions on nuclear activity – growth rebounded, inflation fell to single-digits, and oil exports rose to a peak of 2.8 million barrels a day (b/d) in 2018, for example. But when Donald Trump pulled the plug on the deal, Iran was once more cut off from Swift and oil exports fell to just 300,000 b/d in 2019. Moreover, sanctions did not simply shrink the economy; they distorted it, creating parallel markets favouring those with connections to the elite, and deepening inequality. More recently, Iran’s vulnerability to external events has also been clear. In the seven months since Israel launched its 12-day war against Iran in June, the rial lost 40% of its value. Annual inflation hit 43% in December, while food inflation soared to 72%, and the price of bread rose 113%. Corruption, on an epic and almost shameless scale, further distorts the economy. The Islamic Revolutionary Guard Corps, the country’s security service loyal to the supreme leader Ayatollah Khamenei, for example, controls a vast commercial and financial sector that “benefits from measures that hammer the wider economy”, says The Economist.

Will Iran's regime survive?

As MoneyWeek went to press, it looked as though the protests were ebbing in the face of the exceptionally brutal and bloody state response. Donald Trump has warned repeatedly that the US would strike Iran again if the government kills peaceful protesters, but as yet, that killing has progressed and intensified with impunity. A crucial factor is the lack of a united opposition. This is certainly a desperate moment for Iran. But while anger and misery are abundant, the lack of coordination – and common ground on what the future should look like – means that it may not yet be a revolutionary one.

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How big is Venezuela’s oil industry?

Venezuela’s oil industry is about a quarter of the size it used to be. Venezuela has the world’s biggest proven reserves of oil, estimated at more than 300 billion barrels, or around 17% of the global total. The oil lies onshore, and the vast majority is in the central Orinoco belt – south of the Orinoco River – in a well-mapped 50,000 sq km zone that’s probably the biggest single hydrocarbon deposit on Earth. But in recent decades, Venezuela’s once-surging stream of oil has dwindled to a trickle. Production peaked in the 1960s and 1970s, when US and British oil companies dominated, producing 3.5 million barrels a day, or around 7% of global output at the time. Following nationalisation (in January 1976) production fell, but then rose again until a late-1990s peak. Since the turn of the century, it has slumped, from more than three million barrels/day to a trough of under 700,000 in 2021 and 960,000 in 2024. That’s less than 1% of global supply and most of it goes to China.

What happened under Chávez?

Venezuela's oil production fell slightly under the socialist president Hugo Chávez (1999-2013), but under his chosen successor – the incompetent, corrupt and increasingly authoritarian Nicolás Maduro – production has cratered as the economy tanked. Decades of corruption, mismanagement, underinvestment and a lack of, or botched, maintenance at PDVSA (the state oil company) have severely degraded Venezuela’s infrastructure and capacity. As Maduro tightened his grip by rigging elections and crushing protests, sanctions imposed by the US (and Europe), especially after they were tightened in 2019, have restricted Venezuela’s access to financing, many international markets and vital new technology. More basically, Venezuela’s heavy crude must be blended with diluents such as naphtha, which is hard to source due to sanctions and related supply issues, thus constraining production. Meanwhile, many skilled workers left the industry – indeed, millions of Venezuelans left the country altogether – compounding technical challenges.

What is Donald Trump’s plan in Venezuela?

To take over and revitalise Venezuela’s oil industry, while “ruling” Venezuela from Washington, with Marco Rubio as the absentee viceroy and the current government still in place. For months, Trump touted his military build-up against Venezuela as an anti-narcotics operation. Within hours of Maduro’s removal, Trump announced, “We are in the oil business”. The oil business in Venezuela “has been a bust, a total bust for a long period of time”, Trump said. “We are going to have our very large United States oil companies… spend billions of dollars, fix the badly broken infrastructure… and start making money for the country.” Having decapitated the regime, the US is apparently content to leave the rest of the regime and state apparatus in place – a strategy that has raised questions about exactly how involved Maduro’s deputy (and new interim president) Delcy Rodríguez was in the US mission.

Was Maduro's capture an inside job, then?

It seems Rodríguez was made an offer she couldn’t refuse, or chose not to. As well as being vice-president, Rodríguez was also Venezuela’s oil minister from 2024 and head of the intelligence service from 2018. According to Bloomberg, US oil-industry executives and lawyers saw her as an impressive figure who was navigating Venezuela’s industry through international sanctions, economic pressures and internal mismanagement. In recent months, the US oil industry reportedly lobbied for her as Maduro’s replacement – and Trump’s team came to the same conclusion. Both groups decided that Rodríguez, long seen as a “bridge between the government and private sector, could stabilise Venezuela’s oil-based economy, and facilitate American business faster” than the opposition leader, María Corina Machado, could.

Hasn’t the US got plenty of oil?

Indeed, the US is the world’s biggest oil producer. What it hasn’t got much of these days is the kind of heavy crude produced in Venezuela. That matters because of a structural tension within the US oil industry as a whole; namely, that its big Gulf Coast refineries, built decades ago, are no longer compatible with the type of oil it now produces. The US’s supremacy in oil has been built on the shale-oil revolution: light crude, most of which gets exported. But “if America is going to keep its cars fed with gasoline, it needs heavy, gloopy crude”, says Ed Conway on his Sky News blog. “And since it costs many, many billions of dollars to overhaul refineries, no one particularly wants to do that anytime soon.” The US might be producing more oil overall, but it’s also importing far more heavy oil. In 1978, only 12% of US imports were heavy. Now it’s 70% – mostly from Canada and a small slice (sanctions notwithstanding) from Chevron’s joint venture in Venezuela.

Was the Venezuelan oil grab an easy win for the US?

Hardly. For starters, there’s the sheer scale of the investment required to repair and retool Venezuela’s crumbling infrastructure. According to analyst Jorge Leon of Rystad Energy, roughly doubling production to two million barrels by the early 2030s will cost an estimated $115billion. That’s three times the combined capital expenditure of ExxonMobil and Chevron last year. At current oil prices, around $60 a barrel, and with the world already oversupplied, there’d have to be a truly compelling case for major investment in Venezuela, with its relatively low-quality, cheap oil that’s pricey to refine. Right now, that’s just not there.

Why not?

Because not much has changed except the president, and the economics doesn’t stack up. Venezuela has not suddenly become a better place for the likes of Chevron and Exxon to invest billions, says Yawen Chen on Breakingviews. “It’s the same military-dominated petrostate with corruption issues as before, plus a potentially even worse security situation” – and certainly a more unpredictable one. The country is awash with guns, as Ambrose Evans-Pritchard points out in The Telegraph, and paramilitary “colectivos” exact fees before letting a single barrel move. For oil companies to invest would require the kind of political stability and respect for property rights that once helped make Venezuela one of the richest countries in the world. Trump’s snatching of Maduro was “spectacular and swift”, says The Economist. “The economic reward from it will be neither.”

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The Scottish government has announced plans to sell up to £1.5 billion of its own debt over the next five years, the first time the country has issued its own bonds in more than three centuries. The “kilts”, as they will inevitably be known in a play on the British “gilts”, will help finance the devolved administration. The plans took a step forward last week when two of the major agencies, Moody’s and S&P, gave the planned issue an investment-grade rating. The Scottish National Party plans to press ahead, in part to give it more money to play with, but also, perhaps more importantly, to demonstrate that Scotland can flourish on its own and have credibility in the markets.

The trouble is, it is not likely to work out that way. The ratings agencies were quite clear that they were grading Scotland on the basis that it was still part of the United Kingdom, and the debt backed by the Bank of England and the Treasury in London. If Scotland were an independent country it would surely be a very different story.

To start with, Scotland runs a huge budget deficit. For 2024-2025 it rose from £21 billion to £26 billion. That is 11% of GDP, compared with 5.1% for the UK as a whole. If you took out oil, which might not all go to Scotland in a separation agreement with the rest of the UK, it would rise to a terrifying 14%. The rise was largely on account of lower revenues from North Sea oil and gas, but the SNP is fiercely opposed to the oil industry, and wants to close it down as quickly as possible, so the deficit would be a lot worse if the country became independent. Its deficit would rank as one of the highest in the developed world. It is behind Timor-Leste, at 48% of GDP, and Ukraine at 18%, if above Egypt and Zimbabwe. It is hard to believe that borrowing on that scale would be sustainable for very long.

Next, Scotland has a political class that is addicted to spending. Ever since the devolved government was created at the start of the century the one thing it has proved very good at is giving away free stuff. Higher education does not have to be paid for, and neither do prescriptions, or bus travel if you are under 22 or over 60. It makes politicians sound generous. Some of that is paid for with higher income-tax rates in Scotland than in the rest of the country, but most of it comes from subsidies from London. Public spending is already more than £2,000 per person higher in Scotland than in the rest of the UK, but the budget deficit is still huge. It is hard to see any government in Edinburgh changing that.

It's hard to think of anything worse than Scotland's proposed 'kilts'

Finally, Scotland may break away from the UK at some stage, and, if it does so, it may have to issue its own currency. The SNP has always maintained that it can carry on using the pound after independence, if it ever happens, and the Bank of England will remain the ultimate guarantor of its debts. But the government in Westminster has never agreed to it and neither has the Bank. It is hard to see why they ever would. Anyone holding a “kilt” has to reckon with the possibility that Scotland may have to issue its own currency at some stage and that it will sharply devalue against the pound. Measured in sterling, or indeed dollars or euros, they will face huge losses on their holdings.

In reality, it is hard to think of a worse investment. A market in “kilts” will make that painfully clear almost as soon as it is launched. It might start out trading at the same price as UK-issued gilts, but it will very quickly start to deviate from that. If a second referendum on independence is mooted, prices will plunge if there are polls showing a “yes” vote, which paradoxically, will make that outcome far less likely.

If there is a prospect of a vote being held, prices will start to sink as investors weigh the possibility that it might be a Treasury in Edinburgh rather than London that has to pay them back. Scottish politicians pushing for “kilts” might imagine it will strengthen the case for independence and bolster their financial credibility. More likely is that it will backfire spectacularly, making it clear that an independent Scotland would struggle to pay its bills.

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“History is just one f**king thing after another,” declares a vulgar schoolboy in Alan Bennett’s play The History Boys. Surveying the past 25 years can feel the same way. From Iraq to the euro crisis and from Brexit to bitcoin, a great deal has happened over the quarter-century that MoneyWeek has graced newsstands. But not all news stories are created equal.

Hazarding a slightly more elegant periodisation than Bennett’s character, I would argue that the great turning point of the past quarter-century was the financial crisis that began in 2007. For the UK in particular, recent history can be neatly sliced into two periods: the years before and after the great crash.

London loses its crown

In the early 2000s, London could credibly claim to be the centre of global finance. It topped Z/Yen’s inaugural Global Financial Centres index (GFCI) in 2007.

America might be the superpower, the argument went, but London was the world’s capital. Britain’s economy was like the tennis at Wimbledon, a venue for global heavyweights to clash, helped by the English language and an excellent time zone.

The past is indeed a foreign country. Where once the “Sir Humphreys” in Whitehall talked of surpassing New York, today they tremble at unflattering comparisons to Greece. The London stock exchange fears irrelevance. Nvidia alone, valued at $5 trillion, dwarfs the combined value of all London’s blue chips. Deal volume has never regained its 2006 peak of $51 billion (it was just $248 million in the first nine months of this year).

While the technology megabucks fly on Wall Street, one of London’s most notable listings this year has been Princes Group, a purveyor of tinned tuna. It is a perfectly respectable business, but there is a certain desperation in efforts by officials to tout this solid, dull flotation as heralding some great renaissance.

Most tellingly, UK living standards have flatlined since 2007. “[Had the] pre-2007 productivity trend continued, British workers would be 16% more productive today,” says Aadya Bahl on an LSE blog. The significance of 2008 is much more evident in Britain than in America, where growth eventually recovered. The S&P 500 index of US stocks has rocketed nearly 900% since its 2009 low (compared with 153% for the FTSE 100). The UK had placed all of its chips on the wealth generated by the City.

When that bet imploded, the country struggled to carve out a new role for itself. Ever-Tiggerish, Americans bounced back from the banking disaster, reinventing themselves as shale-oil prospectors and smooth-talking tech venture capitalists; Britain has more resembled a middle-aged man bouncing between odd jobs after an involuntary redundancy.

Far too easy money

Gordon Brown’s hubristic claim to have abolished “boom and bust” was widely panned as the Great Recession got underway. But in this, the chancellor-turned-PM was only mirroring the wider economic establishment, where the notion of a “Great Moderation” (built on the supposed inflation-fighting genius of central bankers) was all the rage.

Central banks treated us to further financial wizardry after the subprime meltdown by unleashing ultra-low interest rates and the money-printing of quantitative easing (QE). More tranches were added whenever markets started to feel queasy. By the peak in 2021, the Bank of England’s QE portfolio had swollen to £895 billion, or 40% of UK GDP. Contrary to the worst fears, inflation did not immediately rocket. What happened was more insidious.

With credit all but free, risky behaviour went unchecked for years. On Wall Street, the era of ultra-low rates led to some truly daft companies and unworkable business models. The most notorious was WeWork, a poorly run office landlord that somehow convinced venture capitalists it was a ground-breaking tech innovator. Investors threw tens of billions at the idea before it filed for bankruptcy in 2023.

The impact on governments’ behaviour was even worse. Easy money anaesthetised bond markets, removing pressure on states to get spending in order. Although not openly admitted, this was by design. The hope was that cheap borrowing costs would prompt governments to borrow and spend more, thus ending the world economy’s post-crisis slump.

Governments binge on debt

It took a pandemic for the balance of global savings and borrowing to shift decisively. Anyone wondering why interest rates and inflation have spiked so violently of late need look no further than the world’s finance ministries. With furlough schemes, governments got out the credit card, treating tens of millions of workers to a year off. Then came the energy shock after Russia’s invasion of Ukraine in 2022, combined with a pressing need to find more money for defence and an ageing population.

The result has been an explosion in public borrowing. In 2000, UK public debt stood at 37.7%. Today it is 103%, with the Office for Budget Responsibility warning that on the current trajectory it will hit 270% of GDP by 2070. It’s a similar story in most of the developed world.

The mirror image of worsening government credit has been surging gold prices. The yellow metal started the year 2000 at $289 an ounce (oz). Today it trades at $4,035/oz. That 1,294% gain arguably makes it the trade of the century so far, far outstripping the S&P 500’s 365% return over the same period. MoneyWeek is a great fan of the yellow metal, but even we must admit that at current levels, vertigo is setting in.

Bitcoin fanatics will argue that theirs is the trade of the millennium. MoneyWeek has been cautious about embracing the highly volatile cryptocurrency. Claims that bitcoin is “digital gold” are suspect. Bitcoin tends to behave more like a risky asset, rising and falling together with frothy tech stocks, than it does a hedge.

Yet our scepticism is proving hard to maintain. Since its first boom in 2017, the digital currency has gone on to return over 500%. Modish “meme” coins can do even better. Investing is about growing and preserving pre-existing wealth, rather than making a fortune from nothing. Yet pick the right meme coin and you can become wealthy overnight. Still, a lottery ticket can also do that for you.

So much for peak oil

Gordon Brown’s talk of ending boom and bust is far from the only dubious prediction over the past 25 years. During the 2000s, looming “peak oil” was a persistent worry due to the depletion of existing reserves. Credible estimates predicted that production would peak sometime around the late 2000s, before plummeting. Oil prices did in fact rocket at the end of the decade, rising from $30 a barrel in April 2004 (when MoneyWeek suggested readers buy) to more than $140 a barrel in 2008 (shortly before it told readers to sell).

Yet peak oil was not to be. All of that talk of coming shortages only prompted capitalists to go out and find more. In the 2010s, Texan cowboys flooded world markets with shale. Today, peak production is thought to be likely to occur in the early 2030s.

Peak oil was overdone, but the warning that energy was set to become more scarce has proved accurate. As cheaper production sources were exhausted, more marginal reserves such as shale require a higher price point to be economical. At $64 a barrel, Brent crude prices trade at a level regarded as cheap by current standards. But that is still much higher than its $29 a barrel of November 2000.

Emerging markets diverge

MoneyWeek was launched just as emerging markets (EMs) were gathering steam. The first decade of the 2000s was a golden era for developing economies, as China entered the World Trade Organisation, and Asia and Russia recovered from financial crises. From January 2001 to the end of 2009, EM equities gained 200%, compared with a measly 4% in developed markets. The rise of EMs has remained a vital theme, but one that proved messier than expected.

For one thing, growth has had a frustrating tendency to fail to translate into equity gains. The EM index has returned a paltry 28% since the start of 2010. Leadership of the complex has narrowed as Brazil, Russia and South Africa variously stagnated.

Yet defying repeated predictions of an imminent “China crisis”, China has kept on growing, although the recent property bust is proving the most serious test yet. Many developing economies become trapped at the “middle-income” level, defined as GDP per capita of between $1,000 and $13,800. With GDP per head of $13,300 as of last year, China finds itself on the cusp of joining the world’s high-income economies.

Since Covid, the world’s second-largest economy has emerged as a global leader in electric cars and AI. This has not made for very exciting investment returns (the CSI 300 index is still 13% off the level it reached at the height of an investing mania in 2015). But as geopolitical facts go, none is more fundamental to the future than the Middle Kingdom’s growing power.

Don’t buy at the top

Other popular narratives today may also ultimately prove wide of the mark. Tech leaders in Silicon Valley are currently warning that automation could lead to a jobless future, while simultaneously worrying that low birth rates will starve the economy of working-age people. The future, they incoherently claim, is one of both mass unemployment and a chronic labour shortage. Both problems can’t be true at once.

What about Britain? Trying to be optimistic, one might argue that pessimism has reached such an extreme level that it won’t be very hard for growth to surprise on the upside. The FTSE 100 has returned a decent 75% over the last five years.

Yet its performance this century has been dire. Up 52% since MoneyWeek launched, the blue-chip index has given investors a measly annualised return of 1.75% over 25 years (generous dividends on top do soften the pain of sluggish capital growth, though). Measure from the 2003 low, and the index has returned 165%.

No country knows more about investing misery than Japan, one of MoneyWeek’s long-standing favourites. Last year, the Nikkei index regained its 1989 peak; it took 34 gruelling years. The Topix share index has returned 275% since 2013, when Shinzo Abe launched economic reforms, but getting there has involved a long and painful wait.

The investment industry is fond of reminding us that over the long-term stocks tend to deliver an attractive rate of return. Yet that is an average. As grinding returns in the UK and Japan have shown, if you buy near the top, your portfolio’s recovery time risks being counted in decades. Those currently going all-in on the US tech frenzy have been warned.

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Manulife CQS New City High Yield Fund (LSE: NCYF) aims to provide investors with a high gross dividend yield (currently 8.8%) and the potential for capital growth by investing mainly in undervalued, high-yielding fixed-interest securities. Around 87% of the portfolio is in fixed-interest securities, with 13% in equities (there is a 20% limit on equity exposure). With respect to currencies, 69% of the portfolio is in sterling, 18% in US dollars and 13% in euros.

As one of the smaller fixed-income funds, NCYF can participate in highly attractive small corporate-bond issues, which are often inaccessible to larger funds owing to their minimum-size requirements. The manager’s prudent risk-management focus has resulted in only three defaults since the fund’s inception in 2007 and enabled NCYF to increase the dividend every year for 18 years.

Three overlooked companies to consider

The largest holding is Shawbrook Group 12.103% Perpetual. Shawbrook is a challenger bank offering lending and savings services for commercial (real-estate and smaller companies) and retail (mortgage- and consumer-finance) customers. It is highly profitable, and its organic growth has been boosted by acquisitions in areas such as vehicle finance and smaller-company lending. Its Common Equity Tier 1 ratio (a gauge of a bank’s core capital adequacy) hovers around a comfortable 13% (3% is the minimum requirement).

The balance sheet and loan book have more than doubled in the last five years to £20 billion and £17 billion respectively. As is true of most challenger or specialist lenders, underwriting at Shawbrook is often manual, reflected in robust net-interest margins of 400 basis points, and a moderate cost of risk of 40 basis points.

The funding side is driven by retail savings, mostly fixed-rate and term, and 90% of the £16.7bn of retail-savings deposits are small enough to be insured by the Financial Services Compensation Scheme. The bank’s lack of coverage by equity analysts and infrequent smaller bond deals means it is often overlooked.

Consider also Stonegate 10.75% 2029. The firm operates a network of pubs, clubs and bars. It is a large player in a fragmented market with a market share of 10%; a supportive sponsor, as demonstrated by its last £250 million equity injection; good asset coverage, with £3.2 billion of real estate; and an improved financial profile. Although Stonegate still faces headwinds and the environment remains volatile, the company is advancing on its initiatives to optimise its assets through the conversion of pubs, disposals, and reducing the number of late-night venues.

There is also a focus on bolstering its appeal to customers, price increases with limited volume elasticity, and cost control. All these factors should lead to an improved free cash-flow profile. The group has no near-term maturities, while liquidity remains adequate. We believe that at 10.75% the bonds remain attractive.

Frontline (NYSE: FRO), the largest equity holding, is a world-leading shipping group transporting crude oil and refined products with a modern, energy-efficient fleet of tankers. Frontline is a beneficiary of sanctions against Russia and Indian refiners shifting some of their imports into the compliant market.

Should the war in Ukraine end, any exports of Russian crude would need compliant, insurable ships rather than the uninsured dark fleet currently used. We are also seeing a major increase in exports from West Africa to Asia, a highly profitable route for shippers. The high payout ratio makes this stock attractive for income investors.

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BP’s days as a stand-alone company seem numbered. Shell has had discussions about a takeover of its rival, The Wall Street Journal reported last week. This won’t happen immediately – Shell has denied it is about to launch a bid, which means it is now not allowed to make an offer for at least six months. But the blunt truth is that BP has been in decline for a long time.

Rewind a quarter of a century to when the shift into green energy began, and BP and Shell were roughly equal. The two heavyweights of the European oil and gas industry had been slugging it out for a century without either ever coming out decisively on top. In the last decade, however, Shell has pulled ahead. With a market value more than twice BP’s, it still ranks in the top five in the industry, while BP has slumped to 14th.

There are many reasons for BP’s relative decline. The Deepwater Horizon disaster was a blow from which it was always going to take years to recover, no matter how well the company was managed. The management lost focus, with a succession of chief executives who failed to stamp their authority on the business in the way that John Browne did between 1995 and his departure in 2007. But the major problem was that by focusing on green energy, it made life very difficult for itself.

Looking back, it was always a crazy decision. For an oil company to get out of the fossil-fuel business makes about as much sense as GSK giving up on drugs, or Unilever ditching soap manufacturing. A company abandons its roots at its peril, and BP’s roots, right from its origins as the Anglo-Persian Oil Company, were in drilling for, and distributing, black gold. Green energy may have been more fashionable, but it never managed to generate the same kind of returns for shareholders, nor did it ever quite seem that the company’s heart was really in it.

Shell, by contrast, has always steered a more sensible path, developing its oil and gas interests, while also investing in alternatives. It is hardly surprising that it has grown so much larger that it is now in a position to make an offer for its great rival. One of the UK’s largest and once greatest companies looks set to pay the ultimate price for a rash decision about green energy.

Potential suitors for a BP merger

Given how badly BP has performed, a merger with Shell is almost certainly the best outcome we can hope for. The oil business has always been about scale, and BP has now fallen too far behind its rivals to survive on its own. If it doesn’t merge with Shell it will probably fall to a foreign owner. The US giants ExxonMobil and Chevron are the obvious suitors, especially given that BP has huge operations in the US and both companies would almost certainly be interested in its assets, and a deal would pose relatively few competition issues.

PetroChina could certainly afford it, but it would pose a big test for the British government if it made an offer. One of the Gulf giants might well be interested, with the giant Saudi Aramco by far the most plausible bidder. With a $1.5 trillion market value, it is far larger than any other oil company in the world. Brazil’s Petrobras is slightly smaller than BP, but might be able to pitch a deal as a merger of equals, and one that would create a new giant. One of the private-equity firms might even be interested.

Those are all plausible scenarios. And they would all be very bad for the British economy. The UK does not have enough genuinely global corporations left that it can afford to lose any more of them. And it would be a big blow for the London stock market if yet another of its heavyweight businesses left. It would be far better for Britain to have a healthy, thriving BP.

Oil used to be one of the global industries where the UK was a genuinely global contender. Sadly, that is no longer the case. BP has fallen too far down the rankings to be considered one of the giants of the industry any more. There is not much that can be done about that now. Given how far it has fallen, a merger with Shell would be by far the best outcome, both for the economy and for the stock market.

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Oil shock averted? World leaders and commodity traders have spent the past fortnight on edge as the long-running Iran-Israel conflict turned hot. Matters came to a head at the weekend when the US directly entered the war, bombing three Iranian nuclear facilities with fearsome bunker-buster bombs.

That dramatic escalation gave the lie to the popular notion that Donald Trump is a “chicken” (“Trump Always Chickens Out”, or TACO, as traders say), says Simon Nixon on Substack. In the grand scheme of things, few geopolitical events have a material impact on markets. But those that do – the 1970s oil crisis, or Russia’s 2022 invasion of Ukraine – have had devastating economic effects.

A “very weak” riposte

American B-2 Spirit bombers had breached Tehran’s reddest of red lines. The world waited with bated breath for its response. Iran’s parliament, which only has an advisory role, voted to close the Strait of Hormuz, the narrow passage responsible for shipping some 30% of the world’s seaborne oil. Analysts warned that such a scenario could send oil prices spiralling above $100 a barrel.

In the event, Monday proved a turning point. Tehran didn’t close the strait. Instead, it fired missiles on a nearly empty American base in Qatar, telegraphed in advance – a face-saving de-escalation that Trump dubbed “very weak”. By Tuesday evening, a fragile ceasefire appeared to have taken hold.

Brent crude began to sell off “within seven minutes” of the first Iranian strikes in Qatar, say Malcolm Moore, George Steer and Jamie Smyth in the Financial Times. Within two hours, the price had dropped more than 7%. But for all the drama of flying missiles, traders had “correctly concluded that the attacks would reduce, rather than heighten, tensions”. Satellite images showed the US had removed aeroplanes from the air base days earlier. “It is all orchestrated, we know the base is empty,” said Jorge Montepeque of Onyx Capital.

Brent crude oil prices tumbled nearly 13% over Monday and Tuesday to trade below $68 a barrel as the Iran risk premium diminished. Global stock markets rallied, with America’s S&P 500 jumping to within 1% of the record high it reached in February.

The risk that Iran would actually go through with closing Hormuz may always have been overstated, according to Tom Holland and Tom Miller of Gavekal Research. America would not be the major victim of a closure of Hormuz. These days, most of the oil that flows through the strait heads east to Asia. China sources “around half of its oil imports from the region”. Closing Hormuz would harm Iran’s friends more than its opponents.

Oil glut incoming

Just a few years ago, an Israeli attack on Iran’s nuclear programme was regarded as the ultimate oil-market tail risk, says Javier Blas on Bloomberg. Analysts talked of oil topping its $147-a-barrel all-time high, or even going above $200 a barrel for the first time. Yet the rise of US shale has transformed energy markets. Indeed, for all the “hysteria” about Hormuz, the world now looks to be heading for an oil supply surge. Opec producers have raised production quotas, and the evidence suggests that Iran’s own production will hit “a fresh seven-year high” this month, an amazing achievement given the country has endured two weeks of bombing.

It’s worth remembering that oil kept flowing largely uninterrupted during the first and second Gulf Wars, and the end of both conflicts brought a fresh jump in supply. If history is any guide, oil prices could be poised to fall “quite a lot”.

The US shale revolution has transformed global power politics, agrees Ambrose Evans-Pritchard in The Telegraph. American frackers have been adding the equivalent of “a new North Sea every three years”. Today the country is “by far the largest combined producer of oil, petroleum products and natural gas” in the world.

Previous US administrations avoided striking Iran for fear of triggering an oil crisis. Thanks to shale, today the country’s leaders have the energy independence to push Iranian leader Ayatollah Ali Khamenei much harder than in the past. “It is undoubtedly a stunning political victory for Trump.”

A pause, not peace

Israel’s prime minister Benjamin Netanyahu has also won a “dazzling, daunting, dangerous victory”, says The Economist. An irate Trump very publicly forced him to halt strikes on Iran on Tuesday, but this nevertheless remains a “moment of triumph”. Israel, a nation of ten million people, has gained “air superiority over much of the Middle East” and subdued its most dangerous enemies in a multi-front war that began on 7 October 2023.

Investors have noticed the geopolitical shift, says David Wainer in The Wall Street Journal. The Israeli TA-125 share index has outperformed the global average, climbing 11.5% over the past month. It registered five straight daily gains last week even as ballistic missiles rained down on Tel Aviv and Haifa.

Why the euphoria? The bet appears to be that the “risk premium” attached to investing in Israel is falling as threats diminish from Hezbollah and Iran. That could encourage more inward investment from abroad. Yet risks remain, from an Iranian regime that might choose to accelerate its nuclear programme to “international opprobrium” over the unresolved Palestinian conflict.

Future developments remain unpredictable, says Marc Champion on Bloomberg. Will the humiliated Iranian regime survive? Will it accelerate its nuclear programme to deter future attacks? The current ceasefire should hold – Iran has few ways to strike back, and Israel has achieved its main military objectives. But “there will be no forever-peace between the Islamic Republic and Israel”.

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“Global oil markets have just become a lot more flammable,” says The Economist. On 13 June, two years of heightened Middle East tension finally boiled over into a full-scale Iran-Israel war. With Iran on the ropes, there is a growing risk that its leadership will resort to “desperate measures”. Tehran might close the Strait of Hormuz, the narrow channel through which 30% of global seaborne crude and 20% of liquid natural gas is conveyed. Worse, many of the Gulf’s largest oil-production sites are within range of Iranian missiles. Such retaliation could send prices soaring above $120 a barrel, according to estimates by bank JPMorgan Chase.

Oil prices surged as much as 12% following the first Israeli air strikes to trade at around $72 a barrel this week. All told, that is a fairly measured reaction, says Henry Allen of Deutsche Bank. Brent crude is still well off its 2024 average level of $80 a barrel. Two brief episodes of Iran-Israel exchanges last year have numbed commodity traders to geopolitical risk.

If anything, the real surprise is “the extent of the market’s resilience to repeated shocks”. So far “not a single barrel has been lost” amid the wave of Middle East violence that began in October 2023, says Javier Blas on Bloomberg. Traders have learnt that shorting crude even as bombs and missiles fly is a “winning trade”.

Oil well supplied through 2030

Geopolitical drama aside, oil markets show every sign of being oversupplied. Global inventories have been running “above seasonal norms” for months. The latest spike may just enable US shale producers to keep pumping profitably at levels that would otherwise not have been possible. Indeed, the global oil market is forecast to remain “well supplied through the end of the decade”, according to International Energy Agency forecasts, reports Giulia Petroni in The Wall Street Journal. Global demand for oil is forecast to rise to a plateau of 105.5 million barrels per day (mbpd) in the coming years, but supply is likely to increase even more to 114.7 mbpd over the same period.

Cooling appetite for oil has much to do with China, says Hans van Leeuwen in The Telegraph. Total demand for oil in the Middle Kingdom is forecast to dip from 18.1 mbpd last year to 16.7 mbpd come 2030 due to mass adoption of electric vehicles (EVs). Chinese motorists purchased two in every three EVs sold globally in 2024. Meanwhile, for British motorists, “every $10 increase in oil adds 7p at the petrol pump”, David Oxley of Capital Economics tells Szu Ping Chan in the same paper. Still, the UK economy is much less dependent on cheap oil for economic growth than it used to be.

In 1975, one tonne of oil equivalent was needed to produce roughly $8,333 in GDP according to World Bank figures, says Gillian Tett in the Financial Times. In 2022 the same amount of oil generated $20,000 of GDP. An “oft-ignored” good news story is that greater energy efficiency and new energy sources are making us all less vulnerable to oil-price shocks than in the past.

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Ed Miliband’s fantasies of climate justice and clean energy are slowly being exposed. The secretary of state for energy security and net zero’s green delusion is going to be abandoned. If an economy is to grow, then it must consume more energy, not less. Wind and solar power are too expensive and too unreliable, to say nothing of the damage they do to the environment and the carbon footprint they leave. The government is already pledging to paint offshore wind farms black because of all the birds they are killing.

Offshore wind is not going to replace oil and gas. Fossil fuels remain a better, cheaper, cleaner and more reliable source of energy. For an already heavily taxed country that is living well beyond its means, where growth is the only thing that can save it, needlessly expensive energy is not possible.

The Reform party is making the cost of net zero one of its main lines of attack. All Labour has to do is further abandon the left of its party, a process which is already half complete, just as the Tories abandoned the right, and let Miliband go, which is inevitable anyway, and the Reform weapon is blunted.

All the above is a preamble to my main argument today. North Sea oil and gas is going to stage a comeback. Political and economic reality mean it is inevitable. Otherwise, the national finances, and with them the Labour government, evaporate. Power is more important to politicians than zealotry, green or otherwise.

The ban on new North Sea oil and gas licences will be lifted. The taxes on North Sea oil companies will be lowered to create an incentive for activity (at present the effective rate is 78%. Are legislators demented?). And all the firms that saw their businesses and market values decimated by this deluded religion are going to make a comeback. Some will multiply many times over. The time may soon be nigh, then, to buy North Sea oil and gas firms. But which ones? Here are my thoughts on the main players in North Sea oil and gas.

Where to look now for investments in North Sea oil

Harbour Energy (LSE: HBR) is the largest independent oil and gas company listed in London; 90% of its business is centred on Britain. Harbour’s market value is £2.6 billion and it yields 11%. Harbour got walloped during Covid, when oil went negative, and had to restructure. The stock got hit again when the Tories imposed a 38% windfall tax after Russia invaded Ukraine; and again after it announced an annual loss, even with a 40% increase in production.

The shares then plunged once more with the falling oil price, which compounded the market’s Trump tariff tantrum. Harbour said its post-tax loss reflected a 108% effective tax rate, up from 93% in 2023. Even if this is an exaggeration, and I’m not entirely sure it is, what is the point of doing business under these circumstances? A simple change in legislation will transform this company’s fortunes. I think it will come, for the reasons outlined above, although when betting on changes in legislation, you can wait a long time.

Ithaca Energy (LSE: ITH) is an Israeli-owned leading North Sea oil and gas producer. It has a £2.3 billion market capitalisation, is hedged against fluctuations in the oil price, and has 37 North Sea operations, which it has grown through acquisitions. It offers a 12% yield.

Aim-listed Serica Energy (Aim: SQZ) has a £600 million market cap and 13% yield. It produces 5% of Britain’s gas. It was supposed to be merging with EnQuest, but the deadline for that deal to close has been extended again. EnQuest (LSE: ENQ) also has some production in Malaysia, and a £230 million market cap. It’s a steady mid-tier producer with a production rate of 41,000 barrels of oil equivalent per day (BOEPD) and a 5% yield. The stock is currently priced as though the Serica deal isn’t going to happen. Kistos (Aim: KIST) is very leveraged to the North Sea. This stock has a £115 million market cap and not long ago was trading at five times its current price. Its shareholders should sue the government for loss of earnings.

Now we come to the tiddlers, starting with Jersey Oil and Gas (Aim: JOG). The £40 million market-cap explorer is funded to the tune of between £5 million and £10 million. It is not the cheapest tiddler, but also not the riskiest. It has more than doubled this year, so somebody is doing something right.

Orcadian Energy (Aim: ORCA) has a market cap of just £9 million. This North Sea developer has yet to produce any oil, but hopes to do so this year. Reabold Resources (Aim: RBD) is a £4.8 million “tiny cap” with no money, so the stock is highly vulnerable to dilution. It has an Italian deal in play that could shift its fortunes. This was an 80p stock in 2021 and a 475p stock in 2007. Now it costs 0.04p. What next? A doubling in price or another 99% decline?

Then there is Deltic Energy (Aim: DELT). This £6.5 million market cap North Sea explorer with three licences, but no money has been creeping back up. It has gained more than 50% this year. But this 7p stock cost 80p in 2021. It is extremely risky, but its Selene gas project is considered a quality asset. The challenge is to raise capital without diluting existing shareholders into oblivion.

The best bet of all these stocks seems to be Harbour. It pays a yield that minimises your risk and compensates you for holding it. I own it, and I’m only down 25% so far. Any change in legislation and the stock could rocket.

Dominic Frisby writes the investment newsletter The Flying Frisby.

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Even by the standards of corporate announcements, BP’s latest update was remarkably vague. The long-suffering shareholders in one of the UK’s biggest global companies might think it matters quite a bit who will be chairing their firm, yet the oil major does not seem to believe that the details are a big deal. While Helge Lund is going to be stepping down, the exact time of his exit will simply be “in due course” and “most likely during 2026”, according to a statement on 4 April.

Still, activist investors led by the hyperaggressive Elliott Management – which has built up a stake of nearly 5% in BP – will be relieved to hear that Lund is on the way out. Along with others, they have been pushing for far-reaching changes at the company. These cannot come soon enough. BP is now worth only half as much its great rival Shell, although the two businesses used to be neck and neck. Over the past five years, BP’s shares have risen by just 9%, while Shell is up by 64%, and ExxonMobil is up by 168%. It has been perfectly clear to everyone that something has gone badly wrong.

BP's bad bet on green energy

True, some things have already started to change. Murray Auchincloss, the CEO since September 2023, unveiled a renewed focus on oil and gas back in February. The firm has already started to shift away from the emphasis on green energy that has dominated much of the last 20 years.

Even so, while there is plenty of talk, there is not yet much sign of anything actually happening. BP needs to move faster. It is hard to believe the outgoing chairman is not part of the problem. After all, Lund had backed BP’s previous strategy under its former CEO, Bernard Looney. This involved moving away from oil and gas, including an ambition to cut its hydrocarbon output by 40% over the course of this decade. BP made a mistake when it made such a big bet on green energy when it should have been building up its oil reserves and betting on fracking to develop new resources.

While BP has been focusing on renewable energy, the shale industry has been booming in the US and elsewhere. Last year alone, there were $105 billion-worth of acquisitions in the US shale industry, led by ExxonMobil’s acquisition of Pioneer Natural Resources and Chevron’s acquisition of Hess. Huge amounts of wealth have been created, and many of the major oil giants have turned themselves into big players in the shale industry. BP could have been leading that.

Even if it missed out on the early boom, it could have been opening up new fracking fields, now that the industry is expanding in countries such as Argentina, and it could have been using its influence in the UK to make the argument that we should be developing our own shale resources instead of relying on gas shipped in from abroad. Instead, BP ignored it and left the field open for others. It has made no huge new discoveries of oil or gas, and it has not joined in the bidding for the shale companies in the same way its major US rivals have. There have been plenty of opportunities for expansion in the energy industry over the last few years. But BP appears to have missed almost all of them.

Yet more dither and delay

Those are more than just minor mistakes. They are indicative of a culture that has been making the wrong decisions for many years now. Next year is likely to be even tougher.

In the wake of the global financial chaos triggered by Donald Trump’s tariff wars, the oil price has slumped to just $60 a barrel, just half the $120 it reached in 2022. It may well fall below $50 over the course of the summer. That will hit the major oil companies hard, and BP was hardly in great shape to start with.

The last thing BP needs is a long search for a successor. Lund should have stepped down on 4 April and announced his successor immediately. Together with a new CEO, there would then have been a team in place that could start turning the business around. Instead, there will be yet more delays and another year of indecision – and that will only prolong BP’s painful decline.

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Investment bankers are keen to engineer a merger between BP and Shell to create a “national champion [to] compete with international rivals such as France’s TotalEnergies and US giants Exxon Mobil and Chevron”, says Mark Shapland in The Mail. The combined entity would be a “behemoth” with 180,000 employees; it would have enough scale to keep costs low. What’s more, Shell, which has “gone from strength to strength” under Wael Sawan, could help turn around BP, whose CEO Murray Auchincloss is now in the “last-chance saloon” after a string of poor results.

Merging BP and Shell isn’t a completely mad idea, says Yawen Chen in Breakingviews. Even modest savings from eliminating duplication could add $33 billion to the value of the combined group. But there are some big “drawbacks”. The size and age of both firms mean that there would inevitably be “a big culture clash and disquiet over job losses”. Moreover, competition authorities would require disposals “in sectors such as retail sites, aviation supply and lubricants”, while BP’s board would demand a high premium on behalf of their shareholders. The upshot? The idea is little more than a “fantasy”.

Should BP and Shell merge?

The fact that BP has slid into “takeover territory” shows how badly things have gone, says Oliver Shah in The Sunday Times. The “wide-eyed promise” made in 2020 by Bernard Looney, Auchincloss’s predecessor as CEO, to cut BP’s oil and gas production by 40% and build 50 gigawatts of renewables by 2030 hit profitability and scared off investors. While Auchincloss has recently tried to move away from Looney’s “unwise” strategy, he has still been “too slow to drop BP’s oil and gas reduction target”. So he is now facing a campaign from activist investor Elliott Management, which has taken a 5% stake.

Despite the fact that Auchinloss has “rowed back on... Looney’s premature embrace of renewables”, he is still spending “billions of pounds on green projects”, says Ben Marlow in The Daily Telegraph. Similarly, while BP has dropped a target to cut oil and gas production by 2030, the fact that output is still on course to be flat is “hardly what you could call an emphatic return to what it undoubtedly does best”. With the high level of BP’s debt ruling out placating investors “by showering them with dividends and buybacks”, everything is “now on the table”, including asset sales and even a forced breakup.

Elliott’s strategy of selling the renewables divisions and refocusing on oil and gas certainly “offers a credible way of getting BP’s share price up”, says Bloomberg’s Chris Hughes. However, it could take more than a “back-to-basics” approach to secure the oil giant’s long-term future. For too long BP, like much of the FTSE, has prioritised returning cash to shareholders via buybacks and dividends over long-term investment. This has led to high levels of debt while “constraining its investment flexibility and its capacity to absorb shocks”.

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BP has announced its lowest quarterly profit since Covid, says Tom Wilson in the Financial Times. Lower oil prices and weak refining margins weighed on the group’s performance. The 30% year-on-year drop in third-quarter earnings to $2.27 billion will “maintain pressure” on CEO Murray Auchincloss, whose pledge to make BP “simpler, more focused and higher value” has so far “struggled to boost performance”. BP will buy back another $1.75 billion of shares but promised to review the level of buybacks next year.

While BP has opted to “soften the ground” by talking about reviewing the payout, “anyone can see the direction BP is taking”, especially as its shares are near a four-year trough, says Bloomberg’s Javier Blas. BP is now “worth less than during the worst moment of the Gulf of Mexico oil spill in 2010”.

It was only able to keep dividends unchanged by taking on leverage, with the result that it is “the most indebted, relative to its size and cash generation, among the Big Oil companies”. Given that “the credit rating comes ahead of the shareholders”, payouts of $1 billion per quarter next year would be more realistic.

Oil sector outlook

It’s not just BP that is feeling the pinch. The “cork-popping years” for America’s biggest oil companies may also be nearing an end, says Collin Eaton in The Wall Street Journal. Exxon and Chevron also posted lower third-quarter profits. Both companies believe that cost-cutting and reduced spending since Covid have prepared them for the worst, with both firms saying they plan to protect shareholders’ payouts. But with a glut keeping prices low, some smaller shale drillers are set to cut buybacks and dividends.

Perhaps the only energy company with good news for shareholders is Shell, says Derren Nathan of Hargreaves Lansdown. It significantly beat earnings expectations thanks to a strong performance in all parts of the company except renewables. This has given management the confidence to “push the button” on a $3.5 billion buyback, the 12th consecutive quarter where plans to buy back $3 billion or more have been announced, while “still managing to shrink its net debt pile”. However, while it seems to be “finding the right balance between rewarding shareholders and investing in growth”, any further pullback in investment “could raise some questions on the group’s ability to future-proof the business”.

Even companies sensibly managing capital and bracing for the energy transition will struggle when there’s too much oil, says Robert Cyran for Breakingviews. Such a day could come sooner than many think, especially as oil cartel Opec and its allies are “sitting on record spare capacity”. Meanwhile, the growth in global demand is likely to slow down, driven by the spread of electric vehicles, which now account for 23% of new car sales. With the International Energy Agency estimating that supply capacity will exceed demand by eight million barrels a day by 2030, investors should “drill for investment ideas elsewhere”.

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A “boy-who-cried-wolf mindset” has set in on energy markets, says Matt Egan for CNN. Traders, caught out by previous false alarms, have become increasingly “numb to the cascade of crises” afflicting the world – a growing war in the Middle East is thus not causing the oil market the panic you might expect. “Pre-shale revolution, this type of situation would have sent prices well above $100” a barrel, says Helima Croft of RBC Capital Markets. Still, as Bob McNally of Rapidan Energy Group puts it, “the story of the village boy who cried wolf did not end well – for the village or the boy”. While markets aren’t yet panicking, they are feeling nervous following comments from Joe Biden that Israel discussed striking Iranian oil facilities in retaliation for last week’s missile attack. 

Brent crude prices topped $80 a barrel recently for the first time since August, before easing back mid-week, say Rafe Uddin and Jamie Smyth in the Financial Times. Oil rose 8% last week for its biggest weekly gain since the start of last year, and has climbed almost a fifth since hitting a year-to-date low last month. Iran accounts for roughly 2% of global crude exports, or two million barrels per day (mbpd), says Anthony Harrup in The Wall Street Journal. 

A six-month halt to that supply could see Brent “temporarily rise to a peak of $90”, assuming other oil producers step in to fill some of the shortfall, say Goldman Sachs analysts. In the short-term, markets will need to put more “risk premium” on oil – the extra paid to cover the risk of supply disruptions, says David Oxley of Capital Economics in a note. “Depending on how things pan out, this “could conceivably” be in the order of “another $20 a barrel to oil prices”.

Why is there a high supply of oil? 

One reason for the market’s relative calm is that there is plenty of extra oil sloshing around, says The Economist. The Opec+ grouping of producers is collectively sitting on more than five mbpd in unused production capacity, which it has been withholding to prop up prices. That is “more than enough to make up” for any eventual loss of Iranian crude. But the situation is fragile. A regional conflagration could see Iran close the Strait of Hormuz, the shipping lane through which 30% of the world’s seaborne crude oil flows. That could send prices surging toward triple digits. For all the excitable talk, Opec quietly abandoned its quest for $100 a barrel oil in June, says Javier Blas on Bloomberg. 

In view of global oversupply heading into next year, “given a binary choice between $100 and $50 for next year, I’d take the latter bet”. As a rule of thumb, a 5% rise in oil prices adds approximately 0.1% to inflation in advanced economies, says Roger Bootle in The Telegraph. That is much less than during the 1970s energy crises, when Western economies were more “oil intensive” than they are today. These price rises, therefore, don’t yet represent a major inflationary risk. Indeed, given weak global oil demand and rising supply, “over the next year the likelihood is that oil prices will soften”.

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Two decades ago, I was covering energy when oil moved above the $20-$30 a barrel range, where it had trodden water for years, and headed above $40. At the time, few analysts thought it would stay there and I don’t remember any believing it could top $50. As we now know, oil kept rising – with some volatility – to trade consistently in the $90-$110 range from 2011 to 2014. 

In hindsight, nobody fully predicted the impact of rising demand in emerging markets, especially China, where it went from 4.6 million barrels a day (mb/d) in 2000 to 9.3mb/d by 2010. An oversight like that should make us wary about predicting too confidently what recent events – from Saudi Arabia saying it will raise output and drop its $100 target price, to the risk of war in the Middle East – will mean. Still, the history of the oil price may give us a few clues about what to watch.

Oil prices over the years

In the 1950s and 1960s, oil was abundant, but the oil price was carefully controlled and fairly stable (equivalent to about $30 in today’s terms). However, the power of Middle East exporters was rising as rapid demand growth swallowed up spare capacity in the US. In 1973, prices soared as these producers announced an embargo on exports to countries that had supported Israel during the Yom Kippur War. A second spike followed in 1979 after the Iranian Revolution and as the Iran-Iraq War disrupted production. 

High prices drove rapid growth from new sources – eg, the North Sea and Alaska – and crude declined steadily. Saudi Arabia tried cutting production to defend higher prices. Its output fell from around over 10mb/d in 1980 to under 3mb/d in 1985, when it got tired of this and ramped up again to regain market share. Prices briefly fell 50% before spending most of the next decade fairly steady (barring a spike in the Gulf War). 

Then we had a demand slump in emerging markets crisis in 1997 and 1998; the recovery and the boom of the 2000s; a brief collapse during the global financial crisis; and then a rebound to what looked like a permanently higher era. This sparked the US shale oil boom. Saudi Arabia increased production to try to crush it, halving prices again. The pandemic, which hit demand, and sanctions on Russia after it invaded Ukraine, which disrupted supply, bring us up to date. 

The balancing act now is US shale versus Saudi Arabia. US firms needed a breakeven price of $64 to drill a new well earlier this year, according to a survey by the Federal Reserve Bank of Dallas; existing wells needed $39 to cover costs. If that’s broadly right, shale supply should be squeezed if Saudi Arabia takes prices below $60, as wells run down (shale wells decline faster than conventional ones) and new ones aren’t drilled. Conversely, get to $90 and they’ll throw everything at it. 

So that seems a logical – if volatile – range over the medium-term. Still, the tail risks go every possible way: a Middle East regional war that locks in capacity, a peak and decline in US shale, a faster transition to renewables, an economic crisis (eg, in China), or even, on the bull side, demand that rises faster than expected in India.

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BP CEO Murray Auchincloss says the group has stopped bidding on new offshore wind projects in order to simplify operations and reduce costs, says Emma Powell in The Times. 

At the same time, BP will spend more on new oil and gas assets, particularly in the Gulf of Mexico and the US Permian basin, where it already has a large presence. The moves hint at a further retreat from the “pivot towards greener forms of energy” embarked upon by former CEO Bernard Looney, especially since the energy-transition strategy has caused “disquiet” among investors and drawn criticism from activist investor Bluebell Capital. 

That BP will be “scaling down its renewable energy ambitions” is no surprise, says Gaurav Sharma in Forbes. Its attempt to build an offshore wind portfolio has “often seen the company overbid for renewable energy assets over and above even established players in the industry” – assets that are “not expected to generate revenue for years”. The strategy was also “out of sync” with shareholders’ desire for “a focus on [the] core oil and gas business along with a slightly tempered approach to the energy transition”.

Is BP still the green leader? 

Even after the latest “tweak”, the company is “still streets ahead of most of its rivals in terms of its transition strategy”, especially since it is “the only major to have a formal target to reduce oil and gas output”, says Nils Pratley in The Guardian. Still, last year Looney reduced this target from 40% by 2030, compared with 2019’s output, to 25%, and few would “be surprised if BP’s renewables ambitions were scaled back again” in the next few years. 

BP’s strategy now seems very far from Looney’s declaration that there is “no turning back” on green investment. Rival major Shell has also “tempered expectations over the pace of change”, says Tom Wilson in the Financial Times. And the US giants are becoming “bolder than ever” in their commitment to oil and gas, with ExxonMobil even filing a lawsuit against an activist shareholder “that has been pressuring the company to set more ambitious transition goals”. 

Overall, this suggests that Big Oil “is unlikely to lead from the front, opting instead to build the capability to enter new markets for lower-carbon energy products as demand evolves”. Ironically, the US energy companies may prove more environmentally friendly than either BP and Shell, says Stefan Andreasson in The Conversation. 

While BP and Shell have respectively spent 8%-12% and 12%-15% of capital expenditure (capex) on renewables in recent years, ExxonMobil has earmarked 17% of capex from 2022-2027 for green projects, “including carbon capture, lithium mining, hydrogen and biofuels”. 

What’s more, BP and Shell’s efforts are “arguably a poorer fit for the majors’ core skill set” than ExxonMobil’s move to become a leading lithium producer for EV batteries, “which fits its drilling specialism”. The core difference is that the US has developed much more “helpful” incentives for such behaviour. 

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The oil market has seen some severe challenges over the past five years. The pandemic up-ended global supply chains, and economic lockdowns devastated demand for the black gold, sending prices plunging briefly below zero.

As economies reopened and bounced back from the pandemic, oil demand surged, sending prices higher. Then Russia invaded Ukraine, setting off yet another market shock. 

The energy market is still recovering from this disruption, nearly two years after the conflict began. Recent events in the Middle East have only compounded market concerns about supply. 

And in the background, there’s another issue - the world is trying to move away from hydrocarbon energy sources as it attempts to slow the impact of climate change. As this shift gathers pace, some analysts predict oil demand will peak in the next few years. 

A challenging market

The oil market has always been challenging to try and predict. 

The world consumes around 100 million barrels of oil daily, of which just over a third was produced by the OPEC cartel of oil-producing nations - led by Saudi Arabia - in 2022, according to the US Energy Information Administration (EIA). 

OPEC+, which includes Russia, produces half as much again as the core group of OPEC countries. In total, the group of OPEC+ producers produce just under 60% of global oil consumption. 

The world’s largest producer is the United States. The EIA estimates the US produced 14.7% of the world’s total output in 2022, compared to Saudi Arabia's 13.2% and Russia’s 12.7%. Middle Eastern producers account for 30% of global output. 

This means the bulk of production of the vital commodity is in the hands of just a few producers. Moreover, approximately a fifth of global production moves through the Strait of Hormuz (according to the EIA), meaning any developments affecting this key supply route can have an outsized impact on global oil prices. 

Those are the risks on the supply side. On the demand side, oil prices are heavily influenced by global economic activity. Even a slight downturn in economic activity can impact global oil consumption and, in this finely balanced market, impact on prices. 

While the outlook for the oil market overall is unclear, there is a growing chance prices will remain elevated and possibly even move higher over the coming months. 

Supply constraints are a growing problem for the market 

A recent report from the World Bank laid out the challenges facing the market today. 

Oil prices have moderated from the peaks seen in the immediate aftermath of Russia’s invasion of Ukraine, an event the World Bank described as “traumatic for commodity markets,” but this should not be interpreted as a sign the challenges have passed. 

An escalation of the latest conflict in the Middle East could disrupt up to eight million barrels of oil production a day, both from producers in the region and tankers travelling through the Strait of Hormuz. That could send oil prices above $150 per barrel in the worst-case scenario, according to the World Bank. 

Oil prices could also receive support from a lack of investment in the sector. Financial service companies have faced increasing pressure to scale back their investments in fossil fuels to enhance their green credentials. But this is already causing alarm in some circles that a lack of investment will hit oil supply before green energy assets come onstream, putting upward pressure on hydrocarbon prices. 

At the beginning of October, OPEC Secretary General Haitham Al Ghais reiterated this warning, saying, "We are... running quite low on spare capacity, we have said this repeatedly, and this requires a concerted effort by all of the stakeholders to see the importance of investing in this industry."

As reported by Reuters, this view was echoed by the CEO of US oil producer Occidental Petroleum, Vicki Hollub, who has warned that low investments will drive energy prices higher.

The opportunity in energy 

The outlook for oil prices in the near term is uncertain and depends on how the situation in the Middle East and Eastern Europe develops over the next few weeks and months. 

It also depends, to a certain extent, on what happens in the global economy. If the US and Europe slide into a protected recession, oil demand will fall, which could weigh on prices. 

However, the outlook for oil prices in the next five years seems far more positive. Oil demand is projected to remain robust throughout the rest of the 2020s, but supply will likely come under pressure due to a lack of investment. 

There’s also a high probability the market will see further supply shocks, which will only add upside pressure to prices. 

With the risks skewed to the upside, the market may be missing the opportunity in energy.

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It looks increasingly likely that the age of oil is on the way out. We’ve been through previous cycles of optimism about other energy sources that didn’t change much: there was plenty of talk about government-backed growth plans involving massive renewables investment after the 2008 crisis, but considerably less action. While there has been increased investment and technological advances that have made renewables cheaper, the world still runs on fossil fuels.

However, it feels different this time. Climate concerns and geopolitical issues have created

a vast incentive for countries such as the US to invest in energy infrastructure (see right). The latest forecasts from the International Energy Agency (IEA), published last week, are clearly in line with that scenario.

The IEA thinks that demand growth will slow sharply in the next few years as electric vehicles replace ones that run on fossil fuel. Demand will rise by 2.5 million barrels per day (mb/d) this year, but by 2028 the annual increase will be just 0.4 mb/d. We’ll still use plenty of oil, but it will be petrochemical demand (and to some extent aviation, the hardest transport use to replace) that drives demand growth. Thus the IEA expects total demand of 105.7 mb/d in 2028 and still rising, but combustible fossil-fuel demand to hit a absolute peak of 81.6 mb/d in the same year.

The IEA’s forecasts have had “a questionable history” as Bloomberg puts it – ie, they are very often very wrong. Still, this outlook seems pretty plausible. It’s hard to see what would drive a much faster growth in fossil fuels in a world in which many major economies see the energy transition as a way to drive economic growth. The IEA estimates that more than $2trn is already lined up for clean-energy investment by 2030.

It’s harder to say what this means for oil prices. In the short term, demand doesn’t look especially bullish. Oil demand growth tracks global GDP growth, deflated by about 1.6 percentage points due to efficiency gains, argues Daval Joshi of BCA Research in a recent note. He thinks economic growth and oil forecasts are still too optimistic, and reckons crude could drop to $55.

On the supply side, the IEA is forecasting tight markets next year, on the basis that Chinese demand will rise and Opec will cut demand. That may be unduly bullish: more supplies from sanctioned countries (Iran, Russia and Venezuela) are making their way into markets, and Saudi Arabia’s unilateral cut this month showed that it is struggling to get its Opec peers to join in.

Still, weak prices discourage more investment: US active oil and gas rig have dropped sharply in recent weeks. Ultimately, around $70 may be the sweet spot – generating enough cash without encouraging firms to spend it. The worst scenario for investors would be for Big Oil to ramp up output in the face of the shift the IEA predicts.

Of all the investment subjects I cover, I will always get the most hits if I write about the UK housing market.

Vying for second place in the readership stakes we have gold and bitcoin, though these two subjects have come against a new challenger in AI.

But if I write about oil, however, few seem to care.

If you frame oil around the Net Zero delusion or geopolitics, readership goes up, however. That way you are giving the subject a spicy political angle, which readers, in these polarised times, are attracted to.

There is one subject even less popular than oil: natural gas.

I don’t cover coal very often, though I imagine it would be down there in the dirt, forgive the pun, along with those other fossil fuels.

So it is with a certain amount of foreboding that we turn to the oil markets today. But turn to them we must. The world which we enjoy today would not be possible without the extraordinary energy that derives from fossil fuels.

Oil makes the world go round

Energy makes everything possible. Without it, we are doomed a fact (or is it an opinion?) which seems to be lost on many who determine policy in the Western world. These policymakers are committed in their drive to wean us off this incredible source of energy that has brought more people out of poverty and raised living standards more than anything else in all human history.

Global oil consumption is around 100 million barrels per day (m b/d).

Venezuela has the world’s largest oil reserves. Saudi Arabia is the world’s largest producer, with an output of 11,5m b/d.

The former is, of course, no ally of the US, but the latter is (broadly speaking). The US gives the Saudi government plenty of military and security “assistance”.

The Saudis, however, have made two announcements this past week, which will not please the Biden administration.

Over the weekend, the Saudis, along with other major producers, announced a surprise production cut of upto 1,15m b/d. The Saudis alone will cut by 500,000 b/d and Iraq by 211,000 b/d.

This comes after a previous reduction last October of 2 m b/d that, I think it’s fair to say, the Biden administration was not happy about.

Why do such reductions infuriate? They push up the oil price. That makes for even more discontented citizens in these inflationary times - citizens who will be less likely to vote Democrat next year.

They also increase the scarcity and thus the value of Russian oil exports. The last thing the US will want to see is anything that increases Russian economic strength in these times of weaponized finance. Every dollar rise in the price of oil sees a $2.7bn increase in Russian export value is one stat doing the rounds.

Then there is the issue of the US’s strategic oil reserves. In an attempt to put a lid on gasoline prices, the Biden administration sold 180m barrels from the reserve last year for an average of $96.25 per barrel.

With falling oil prices this was looking like a good trade - as long as they bought back.

The plan was to replenish the reserve and buy back on the open market when prices reached $67-$72. That target was reached, but the administration, along with the entire investment world, we now know in retrospect, only had two or three days in March to buy the sub-$72 dip. I doubt they managed it.

The US SPR now sits at 372m barrels - the lowest level since 1984. The all-time high was 727m barrels in 2010.

Oil prices react to market fundamentals

Since the March 20 intraday low at $70, Brent has shot up to $85.

So now we turn to irritation number two: the strengthening of Saudi energy ties to China.

These were demonstrated last week with the announcement of a $3.6bn deal that would see it supply 480,000 b/d to China’s Rongsheng Petrochemical.

“The traditional monogamous relationship with the US is now over,” said Saudi analyst Ali Shihabi.

This follows a trade deal between China and Brazil (China is Brazil’s largest trading to partner) to settle in yuan and reais, rather than dollars. It’s all part of this gradual de-dollarisation process that is happening. (China is already settling with Russia and Pakistan in yuan).

It’s not just de-dollarisation, it’s de-westernisation. At 5.4% of its holdings, Brazil’s yuan-denominated foreign-exchange assets now exceed its euros.

At the “Russian Davos” - the St. Petersburg International Economic Forum - which was held last week in New Delhi, one Russian official, State Duma Deputy Chairman Alexander Babakov, stated that a BRICS (Brazil, Russia, India, China and South Africa) alliance was working on a new currency secured by gold and other commodities, including rare-earth elements.

“Its composition should be based on inducting new monetary ties established on a strategy that does not defend the U.S.’s dollar or euro, but rather forms a new currency competent of benefiting our shared objectives,” he said.

This is not a new concept, but that does not mean it is not the broader diffraction of travel.

Coming back to the subject of oil, recession and sagging demand has seen the price slide since mid-2022. But we seem to have found a floor of around $70.

In 1980 OECD nations made up 70% of global demand. Now it is well below 50%. But demand forecast models tend to focus on developed nations, though in emerging markets consumption is resilient. As a result, global demand now exceeds 2019 pre-Covid levels. It is only going to increase.

Oil stocks will benefit from a lack of investment

As well as geopolitical factors, investment remains low. In 2014 it was $900bn, says the IEA. Today it is $400bn. Investment drives supply. Global stockpiles stand at 2003 levels. “If our models are correct,” says natural resource investment house Goehring & Rozencwajg, “inventories could end the year at the lowest reading since 1986.”

But “investors still refuse to allocate capital to the space”, they continue. “Over the last two years, energy has outperformed any other sector in the S&P 500 by 130 percentage points and the index by 150 percentage points. And yet, energy still represents less than 5% of the S&P500’s market capitalization – less than half its long-term average and 65% below the 2008 peak.”

Despite the outperformance, oil and gas are experiencing net outflows.

ESG plays a large role in this. Investment houses can’t invest even if they want to because of ESG guidelines. Misguided anti-fossil fuel narratives in the woke West that fail to take into account the amazing things that fossil fuels have made possible do not help either.

Western energy policy is steadily impoverishing Westerners.

No wonder so many nations are economically de-Westernising.

“Despite weaker-than-expected second-half demand, we estimate that global oil markets were in structural deficit by as much as 500,000 b/d throughout 2022,” Goehring & Rozencwajg continue. It will be higher in 2023, they say.

This won’t change until there is a radical re-think of energy policy, which means a huge change in the discourse, and thus of the personnel that determine it. We are years away from that. The lack of investment has been chronic for over a decade. It points to much further higher prices down the road.

The West is getting left behind.

Can you say why I feel it is so important in a portfolio to have allocations to both gold and energy?

Until about 150 years ago, one of the main sources of oil for purposes such as lighting, was whales. People had been collecting “rock oil” from seeps, where it oozes to the surface, for centuries. Unfortunately for the whales, however, scooping it up from the ground wasn't commercially viable.

In efforts to get at the stuff in more commercial quantities, oil wells had been sunk in Poland and Canada. But these were hand-dug affairs. In 1848, a well was drilled in Azerbaijan by Russian engineer FN Semyenov, considered by many to be the first modern-drilled oil well. But it would be Edwin Drake that would have the biggest and most immediate effect on the industry in the USA.

With the backing of the Seneca Oil Company, Drake used new techniques (which he neglected to patent) using an iron pipe to drill a comparatively deep well through the bedrock in Titusville, Pennsylvania. And on this day in 1859, at a depth of 69 feet, he struck oil. His pioneering well produced 25 barrels of oil a day.

It wasn't all plain sailing for Drake, however. He had spent five months perfecting his drilling method. And soon after production began, his chief driller sparked disaster when he went to inspect the well one dim day, using an oil lamp to light his way. The oil inevitably ignited, and burned down the well buildings and Drake's house.

But Drake's well proved that it was economically feasible to extract oil from the ground, and his success sparked a boom. Imitators sprung up all around the immediate area. And within 13 years, they were producing some 16,000 barrels a day.

Many people got humongously rich. But not Drake; he ended up broke. He only drilled three wells in total, and lost an awful lot of money speculating in oil. But the grateful people of Titusville granted him a stipend, and in 1876, the state of Pennsylvania awarded him a pension.