Where Money Goes as War Breaks Out in the Middle East
Israel’s attack on Iran puts oil in the crosshairs… the bull case beyond conflict… nuclear stocks are moving higher… a new gold all-time-high is on the way
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Tensions in the Middle East have officially erupted – and this time, the consequences for global markets, especially energy prices, could be far more profound than anything we’ve seen in years.
Last night, Israel launched a direct military strike against Iranian nuclear assets. The move comes after days of escalating rhetoric, ominous signals from Washington, and a clear sense that something was coming.
In the hours since, the attacks have continued.
Here’s The Wall Street Journal with more:
Israel launched more attacks against Iran, hours after wide-ranging strikes on the country’s nuclear program and military leadership. The head of the Islamic Revolutionary Guard Corps was killed and dozens of targets were hit in an operation that pushes the region into a new conflict with uncertain consequences…
Two hundred jet fighters wrapped up the first wave of the attack, Israel said. Iranian Supreme Leader Ayatollah Ali Khamenei said Israel “should expect severe punishment” for the strikes. Israel said it had started shooting down drones launched in a retaliation by Iran.
Earlier in the week, President Trump struck a sharply more negative tone about ongoing nuclear negotiations with Tehran.
On Monday, on the “Pod Force One” podcast, Trump said he was “less confident” of reaching a deal. From Trump:
I don’t know. I did think so, and I’m getting more and more – less confident about it.
Then, on Wednesday, we learned that Iran was proceeding with opening a third uranium enrichment site. Previously, the United Nations nuclear watchdog agency concluded that Tehran has not complied with its nonproliferation obligations – antagonistic to the West.
The U.S. then took the extraordinary step of evacuating nonessential personnel from embassies in Baghdad, Kuwait, and Bahrain, citing rising tensions and credible threats. The Pentagon supported the drawdown, a move that typically only occurs when active hostilities are expected.
Within hours, Israel acted, bombarding targets believed to be tied to Iran’s nuclear infrastructure.
From an investment angle, the biggest issue is the Strait of Hormuz
As I write late-morning Friday, stocks are down, but not dramatically. While the Dow is off just over 1%, both the S&P and Nasdaq are lower by less than 1%. This subdued reaction is because 1) the U.S. was not directly involved, and 2) this has limited impact on the overall corporate world.
But there is one sector where the exposure is significant…
Oil – which puts the focus on the Strait of Hormuz.
About one-fifth of the world’s oil passes through it daily, making it one of the most important passages in the world.
If it’s closed off or mined in retaliation to the Israeli strikes, the impact on oil prices could be dramatic.
According to Natasha Kaneva, head of global commodities research at JP Morgan, oil could spike to $120 per barrel – possibly higher – if Iran shuts down the Strait of Hormuz.
Over the past few days, the oil market has responded swiftly to the growing risk. The price of Brent Crude spiked from about $65 earlier this week to nearly $69 before pulling back slightly.
While that move reflected the growing anxiety, it hardly priced in what was coming if global leaders couldn’t de-escalate…
And we now know they couldn’t.
As I write Friday morning, Brent Crude has spiked 6%, now trading at $73.43.
And if the fighting expands, or drags in Iran’s regional proxies – Hezbollah, the Houthis, Iraqi militias – we could be in for a far more prolonged disruption to the energy complex.
But the Middle East conflict is only a catalyst. The case for owning top-tier oil plays is much bigger than this…
Remember the fundamental story for oil
There are compelling structural reasons to be bullish on oil stocks as we look ahead to the back half of 2025, even if cooler heads prevail in Israel/Iran.
First, valuations in the energy sector remain historically cheap.
After a strong 2022 and early 2023, many oil and gas names got left behind in the AI-led tech rally. Despite robust free cash flow, improved balance sheets, and shareholder-friendly capital return policies (via buybacks and dividends), energy stocks have underperformed.
We see this in their valuations. While many leading tech stocks trade at 25–30x earnings (or much higher), many oil plays sit closer to 10–12x earnings. Here are three examples:
- TotalEnergies (TTE): PE of 10.40
- ConocoPhillips (COP): PE of 11.83
- BP PLC (BP): PE of 12.7
This kind of discount isn’t likely to last, especially as oil prices move higher and the fighting escalates.
Plus, fossil fuel demand isn’t going away
In recent years, environmental, social and governance (ESG) narratives and electric vehicle hype dampened enthusiasm for fossil fuels – at least in the headlines.
But global oil demand hit a record high in 2023, surpassing 100 million barrels per day (bpd) for the first time ever.
It’s still climbing. India and China are driving resurgent demand (mostly China amid recent stimulus chatter).
Even the U.S., supposedly in transition to “clean energy,” remains a top oil consumer. Airlines are flying full again, drivers are on the road, and shipping volumes are rebounding.
Finally, don’t overlook what will likely be the fastest growing source of demand of all over the next few years…
AI.
The role of AI and data center power demand is rapidly becoming a bullish tailwind for natural gas. Although oil and gas aren’t always tightly correlated, they often trade in the same investor baskets, and the rise in gas prices could help lift the sector broadly.
AI models like ChatGPT, Sora, and new-generation agentic AI require immense computational power – and that power needs stable, scalable baseload energy.
Today, that energy is coming largely from natural gas.
Goldman Sachs recently projected that U.S. power demand could grow by as much as 15% over the next decade, driven in large part by AI. So, if you’re looking for a stealth AI play that isn’t trading at 30x sales, natural gas exposure (via producers or midstream infrastructure names) is worth serious consideration.
Our macro expert Eric Fry, editor of Fry’s Investment Report, has a recommendation: Devon Energy (DVN) (Disclaimer: I own DVN.)
After profiling the opportunity in natural gas, and many of Devon’s advantages, Eric homes in on AI/datacenters:
Devon might also benefit from a new “wildcard” source of natural gas demand: data centers.
These massive computer warehouses could boost natural gas demand by 20% to 45% over the next five years, according to Wells Fargo research. The mid-point of that estimate would be equivalent to doubling the current production from the Delaware Basin.
Devon Energy’s share price does not reflect that potential upside.
For more of Eric’s AI and energy picks as a Fry’s Investment Report subscriber, click here to learn about joining him.
Dovetailing with energy and AI, don’t miss what’s happening with nuclear stocks
Over the past year, Microsoft, Meta, and Amazon have all taken concrete steps into nuclear energy.
These are no longer theoretical “green energy” moves – they’re strategic investments to secure long-term power for the AI age.
This week, we saw a jolt in the sector when Oklo Inc. (OKLO) exploded higher on news that the U.S. Department of Defense awarded it a contract to deploy a microreactor at a military installation.
Here’s our technology expert Luke Lango. From his Early Stage Investor Daily Notes:
Oklo, the nuclear startup backed by OpenAI CEO Sam Altman, was awarded a Notice of Intent from the Department of Defense to build a small modular reactor at Eielson Air Force Base.
Yes — nuclear nano-reactors are now a real thing. This is not a drill.
To Luke’s point, this is a real-world validation that advanced nuclear is moving out of the R&D phase and into implementation. And it confirms what we’ve stressed in prior Digests…
Nuclear is quietly becoming a critical component of the AI infrastructure stack.
By the way, a quick “congratulations” to Luke’s Early Stage Investor subscribers…
Though OKLO is making the headlines, one of our Luke’s nuclear recommendations, NuScale Power (SMR), has been surging – and for good reason: NuScale holds the only NRC-approved small modular reactor design in the U.S., giving it a regulatory moat.
Early Stage Investor subscribers are up 156% since last fall.
Congrats and keep holding – it looks like this megatrend is just getting started.
Circling back to the Middle East before we sign off…
While energy markets are the obvious front line, don’t take your eyes off gold.
Geopolitical crises, especially involving the Middle East, tend to drive safe-haven demand. So, with the Israel-Iran conflict officially ignited, gold could spike.
We’re already hovering near record territory – the yellow metal has popped more than 1% this morning, trading at $3,448 as I write. A decisive break above previous all-time highs is likely to open the door to a fresh leg higher.
But if gold is going to jump, then gold miners are likely to explode.
One miner from Eric that we’ve highlighted in recent weeks is Westgold Resources (WGXRF).
Eric recommended the miner in January. Fry’s Investment Report subscribers are already up 70% with more gains appearing likely.
A “congratulations” to you too.
I’ll note that we first profiled Westgold in our March 18th Digest. If you bought then, you’re up roughly 15%.
Lots of global risk… but even more global opportunity
As we wrap up, yes, the headlines are intense – the sudden outbreak of war, unresolved trade wars, the risk of reinflation, additional geopolitical flashpoints.
But beneath the noise, this market is loaded with potential: energy, gold, nuclear, AI, datacenters, you name it…
As always, don’t overextend yourself, but make sure you’re not overlooking the abundant opportunities out there right now. They’re out there.
Have a good evening,
Jeff Remsburg
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