Iran threatens to block the world's busiest oil route — grab energy stocks before crude surges further
Iran has halted peace talks with the U.S. and is threatening to completely block the Strait of Hormuz — a narrow waterway that roughly one-fifth of the world's oil passes through. Oil prices are jumping on the news, which is great for oil companies but bad for bonds.
Idea
The Strait of Hormuz is the world's most important oil chokepoint. If Iran follows through on its threat, roughly 20% of global oil supply is at risk of disruption. That kind of supply shock has historically sent oil prices — and oil company stocks — sharply higher in a hurry. Even the threat alone can keep prices elevated for weeks as traders price in the risk. Oil exploration companies and ETFs like XOP tend to move even more aggressively than the commodity itself because their profits are highly sensitive to the price of crude. This is a fast-moving geopolitical situation, so position sizing should be modest.