Oil majors in the United States are profiting from the war on Iran, as soaring energy prices boost earnings but the crisis is threatening their longstanding investments in the Gulf. ExxonMobil and Chevron posted combined second-quarter earnings of more than $26.6bn earlier this month, buoyed by higher oil prices triggered by the closure of the Strait of Hormuz which disrupted global energy flows. Since the war began on February 28, Brent crude has risen about 22 percent, from $72 to $88 a barrel.
The strategic waterway – through which one-fifth of the world’s oil and natural gas was shipped before the war – remains largely closed to commercial traffic, though Iran and Oman agreed last week on a temporary maritime route. Iran says the strait will not fully reopen until the United States fulfils its commitments under a lapsed interim peace deal, leaving longer-term security and management arrangements unresolved. In the absence of a lasting resolution, the disruption is likely to continue supporting higher energy prices and creating windfalls for producers, despite placing energy companies’ regional assets and future projects at greater risk.
Rahul Choudhary, vice president of Upstream Research at Rystad Energy, an independent energy research company, said the conflict has already reduced the amount of oil and gas US energy firms are drawing from the Gulf region. While higher commodity prices have helped offset the immediate financial impact, Choudhary said prolonged disruption is likely to delay major projects and weigh on the future growth plans of US oil and gas companies with a presence in the region. The surge in the oil price since early March, when Iran first closed the Strait of Hormuz, has delivered a windfall for oil companies, but gains have been tempered by challenges in the Gulf.
Chevron has limited exposure to Arab Gulf supply disruptions, with the region accounting for just 5 percent of its total global output. The group reported its highest quarterly profit in six years of $12bn in adjusted earnings on July 31. ExxonMobil, by contrast, has been far more exposed to disruption in the Middle East, with the closure of the Strait of Hormuz and Iranian attacks on US-linked infrastructure in the region affecting its operations in Qatar and the United Arab Emirates (UAE), which together account for 20 percent of its global equity upstream supply, according to Choudhary.
However, the shortfall was covered well by higher commodity prices,” Choudhary said. The contrast highlights a broader divide between those US energy companies which have benefitted from tighter global supply – and the corresponding rise in the oil price – and those with assets, partnerships or operations in the Gulf at greater risk of disruption caused by recent attacks on energy facilities. The Gulf’s energy sector is dominated by state-owned giants such as Saudi Aramco, Abu Dhabi National Oil Company (ADNOC) and QatarEnergy.
Although these national oil and gas companies retain control over the region’s reserves and core infrastructure, US energy firms have carved out strategic positions across the region. US companies generate revenue through stakes in production assets, joint ventures, production agreements, refining and petrochemical projects, as well as through long-term contracts to provide equipment, engineering and operational expertise. ExxonMobil has some of the largest US commercial interests in the Gulf.
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