BP and Shell Stock in Focus as Iran Closes Strait of Hormuz

What Happened as Iran Declared the Strait of Hormuz Closed

Iran's Islamic Revolutionary Guard Corps said it struck a vessel that had switched off its tracking systems and taken an unauthorised route through the Strait of Hormuz, and declared the waterway closed "until further notice." The strait, which lies between Iran and Oman, normally carries around a quarter of the world's seaborne oil trade. The exchange of strikes between US and Iranian forces over the weekend followed months of a wider conflict that has already been weighing on UK growth, and borrowing costs moved higher on fears the standoff could disrupt tanker traffic for an extended period.

Why BP and Shell Stock Are in Focus

A closed or heavily disrupted Strait of Hormuz is one of the more direct shocks the oil market can face, because so much of the crude and gas that reaches Europe and Asia has to pass through it. For BP and Shell, both integrated oil and gas majors, a sustained rise in Brent crude that follows a supply scare like this tends to lift profits from their own production, even though their refining and retail arms can face higher input costs at the same time. Neither company is named in the reporting itself, but both sit at the centre of how a Hormuz disruption feeds through to UK listed energy stocks.

Which Stocks, and Why

BP and Shell each produce a meaningful share of their oil and gas away from the strait itself, so a supply squeeze there tends to lift the price they can sell their own barrels for. Given how large a share of world oil trade moves through the strait, and that this standoff follows an Iran conflict that has already run for months, the effect on Brent crude looks more like a sustained repricing than a one day blip in the market.

International Airlines Group, owner of British Airways, sits on the other side of this trade. Jet fuel is priced off crude, so a prolonged rise in oil costs directly squeezes airline margins, and IAG's long haul routes through the Middle East and Asia would also face real disruption from rerouting if the closure holds for any length of time.

What to Watch

The clearest signal is whether tankers actually stop moving through the strait, or whether this declaration eases within days, as has happened before during previous Iran and US flare ups. Brent crude's reaction over the coming sessions will show how seriously traders are taking the closure. Also watch for any formal guidance from BP or Shell on their Middle East shipping routes, and for jet fuel price moves that would show up directly in IAG's cost base.