Energy Stocks Surge as Hormuz Stalemate Drags On
BP doubles earnings, Diamondback up 35% YTD as oil stays above $100. Analysts warn prices could hit $150 if strait remains closed.
Three months into the Iran crisis and energy stocks are printing money.
The Strait of Hormuz remains effectively closed despite an April ceasefire. Ship traffic through the critical waterway sits far below pre-war levels. And oil continues to trade above $100 per barrel—60% higher than February lows.
The Energy Select Sector SPDR ETF (XLE) has gained 24% year-to-date, making energy the best-performing sector in the S&P 500. Individual names are doing even better.
The Winners
BP has quietly become the standout. Shares have climbed more than 30% in 2026, with Q1 earnings more than doubling year-over-year as rising crude prices offset supply disruption impacts.
The stock trades at $46.41 with a 4.26% dividend yield—attractive for income investors who remember BP's dividend cut during the 2020 oil crash. The caveat: BP carries the highest debt-to-equity ratio among integrated peers, making it more leveraged to oil prices in both directions.
Diamondback Energy (FANG) offers a purer play. The Permian Basin producer has gained 35% this year with earnings entirely driven by commodity prices. Unlike BP or Exxon, Diamondback has zero Middle East exposure—its wells are in Texas, thousands of miles from any conflict.
Diamondback reports May 5. Expectations are high.
Chevron sits somewhere in between. The integrated major has underperformed BP and Diamondback but offers the strongest balance sheet in the sector. For conservative investors worried about an eventual price collapse, Chevron's financial cushion provides protection.
| Stock | YTD Return | Dividend Yield | P/E |
|---|---|---|---|
| BP | +30% | 4.26% | 7.2x |
| Diamondback | +35% | 3.8% | 8.1x |
| Chevron | +18% | 3.4% | 11.5x |
| XLE ETF | +24% | 3.1% | 9.8x |
The Risks
JPMorgan warned last week that oil could spike to $120-130 per barrel near-term, with potential to surge above $150 if the Strait of Hormuz remains disrupted through mid-May.
That sounds bullish for energy stocks until you consider what $150 oil does to everything else.
Consumer sentiment has already weakened on higher gas prices. March CPI hit 3.3%—the highest since May 2024—with energy costs driving much of the increase. If oil stays elevated through summer, demand destruction becomes a real risk.
Energy stocks eventually follow commodity prices, and commodity prices eventually follow demand. The crisis that's boosting earnings today could trigger the recession that crushes them tomorrow.
How to Play It
Goldman Sachs analysts argue energy stocks remain cheap relative to underlying commodity prices. Even at current levels, most E&P names trade at single-digit earnings multiples.
But this isn't 2008, when integrated majors were considered safe havens. The sector carries binary geopolitical risk. A breakthrough deal could send oil tumbling $20 in days. Continued escalation could push it toward $150.
For traders, the setup favors defined-risk positions—options strategies that capture upside without unlimited downside exposure. For long-term investors, fee-based midstream businesses like Enterprise Products Partners offer more stable cash flows through energy cycles.
The Iran stalemate shows no signs of resolution. Tehran wants sanctions relief without nuclear concessions. Washington refuses to split the two issues. Oil prices remain hostage to that standoff.
Energy stocks are winning for now. Whether that continues depends on headlines from the Persian Gulf that no analyst can predict.