Financial markets and everyday Australians are being bombarded with news of the Middle East crisis and what it means for our lives and investments. There’s just so much to take in and analyse.
I received a great summary from superannuation and trading platform SuperHero (declaration: I’m a customer and investor) on the impact of higher oil prices on investment markets.
How oil prices move the stock market:
Inflation and interest rates
Oil is a core input cost across almost every industry. When crude prices rise, businesses face higher costs for energy, transport and raw materials. Those costs get passed on to consumers, pushing up the price of everything from groceries to airline tickets.
Higher inflation puts pressure on central banks to keep interest rates elevated for longer. That matters for equities because higher rates increase the “discount rate” used to value future corporate earnings, which tends to weigh on share prices, particularly for growth stocks.
We’re seeing this play out in real time. With oil prices surging since late February 2026, analysts now expect the US Federal Reserve to delay further rate cuts, keeping borrowing costs higher across the economy.
Corporate profit margins
Not all companies are affected equally. For energy-intensive businesses (airlines, logistics firms, manufacturers and agriculture), a spike in oil prices directly squeezes profit margins. If they can’t pass those costs on to customers, earnings take a hit.
On the flip side, oil and gas producers see their revenues climb as the commodity they sell becomes more valuable. The same barrel of oil that cost US$70 a few weeks ago now sells for US$90 or more.
Consumer spending
When fuel prices rise, households have less money to spend on everything else. In the US, retail petrol prices have jumped by more than 50 cents per gallon since the Iran conflict began. In Australia, drivers are already feeling the pinch at the bowser.
This diversion of spending away from discretionary goods (dining out, entertainment, retail) and towards essentials (fuel, energy bills) tends to hurt consumer-facing businesses and drag on broader economic growth.
Investor sentiment and volatility
Oil price shocks trigger fear and uncertainty, two things markets hate. Since the Iran war began, we’ve seen dramatic swings across global indices. Japan’s Nikkei 225 recorded its worst single-day fall since April 2025. South Korea’s Kospi dropped 6 per cent and was halted for 20 minutes due to heavy selling. Even in the US, the S&P 500, Dow and Nasdaq have all experienced significant intraday swings driven by conflicting reports about the Strait of Hormuz.
When volatility spikes, investors tend to rotate out of riskier assets and into perceived safe havens like bonds, gold or cash, putting further downward pressure on equities.
Sector winners and losers when oil prices spike
The impact of rising oil prices is not uniform across the share market. Some sectors benefit directly, while others bear the brunt.
Winners:
- Energy producers: Companies like Exxon Mobil, Chevron, Occidental Petroleum and Diamondback Energy have all rallied since the conflict began. Higher crude prices directly boost their revenues and profit margins. On the ASX, energy names like Woodside, Santos and Beach Energy tend to follow a similar pattern when global oil prices rise.
- Defence and aerospace: Geopolitical conflict tends to drive increased government defence spending. Stocks like Northrop Grumman and Lockheed Martin surged in early March 2026.
Losers:
- Airlines: Jet fuel is one of the largest costs for any airline. United Airlines, American Airlines and Alaska Air all fell more than 4 per cent in a single session following the initial oil spike. Australian carriers like Qantas are not immune either.
- Consumer staples and discretionary: When consumers redirect spending to fuel and energy, companies selling packaged food, snacks and non-essential goods feel the squeeze. In the US, Campbell’s, Conagra and General Mills all dropped between 4 per cent and 7 per cent as the market priced in weaker consumer spending.
- Transport and logistics: Higher fuel costs hit trucking, shipping and delivery companies hard. In the US, companies like FedEx and UPS see margins compress as diesel prices climb. On the ASX, logistics operators like Brambles and Qube Holdings are sensitive to fuel cost movements. Any business with a large fleet faces immediate margin pressure.
Companies affected by oil prices and how investors can position
If you’re wondering which specific companies are most exposed to oil price movements, here are some of the key names to know on both sides of the Pacific.
On the ASX
- Woodside Energy is Australia’s largest independent oil and gas producer, operating major LNG projects including Pluto and North West Shelf in Western Australia, as well as the Sangomar oil project offshore Senegal. Higher oil and LNG prices flow directly into Woodside’s earnings. The company recorded record production in 2025 and currently offers a dividend yield above 5 per cent. Woodside shares surged nearly 7 per cent in a single session when the Iran conflict began and are up roughly 30 per cent for the year.
- Santos is Australia’s second largest oil and gas producer. What makes Santos particularly interesting right now is its timing: the company shipped its first LNG cargo from the long-awaited Barossa gas project in January 2026, and production is expected to rise roughly 30 per cent by 2027 as Barossa and its Pikka project in Alaska ramp up. Rising output plus rising oil prices is a powerful combination for earnings.
- Karoon Energy is a smaller, pure-play oil producer focused on offshore Brazil. With a market cap of around A$1.25 billion and a P/E of roughly 7, Karoon is far more sensitive to oil price swings than its larger peers. It surged more than 15 per cent in a single day when the conflict began, but would likely give back gains just as quickly if prices retreat.
On the losing side, ASX-listed airlines like Qantas face immediate margin pressure when jet fuel costs rise. Consumer-facing retailers and logistics companies with large fleet operations are also vulnerable.
How investors may consider positioning for oil price movements
There are several ways investors can position their portfolios around oil price movements, depending on their risk appetite and time horizon.
- Direct energy exposure: Buying shares in oil and gas producers gives you direct exposure to rising crude prices. Larger, diversified companies like Exxon, Chevron or Woodside tend to be more resilient across the cycle, while smaller pure-play producers like Karoon offer more upside (and more downside) when prices swing.
- Energy ETFs: For investors who want energy exposure without picking individual stocks, exchange-traded funds (ETFs) that track baskets of energy companies can provide diversified access to the sector. In the US, the Energy Select Sector SPDR Fund (XLE) tracks major US oil and gas companies. On the ASX, the S&P/ASX 200 Energy Index (XEJ) covers Australia’s largest energy producers.
- Sector rotation: Some investors use oil price trends as a signal to rotate between sectors. When oil is rising, they may increase exposure to energy while reducing holdings in oil-sensitive losers like airlines and consumer discretionary. When oil falls, the rotation reverses. This approach requires active management and a willingness to trade more frequently.
- Stay diversified: Perhaps the simplest approach is to ensure your portfolio has some energy exposure as a natural hedge. Holding a mix of sectors may help to diversify a portfolio; for example, energy holdings could potentially offset losses in sectors like airlines or consumer stocks during oil price spikes. The key is not to over-concentrate in any single sector.
One thing worth keeping in mind: war-driven oil rallies tend to unwind just as quickly as they form, because they are built on uncertainty rather than lasting supply destruction. Timing matters and chasing a spike after it has already happened can be risky.
