By: Wilson
I am usually early, so please take everything I write with a grain of salt. Since the start of this Iran War, my view has been that it’s all or nothing. Either Iran controls the Strait of Hormuz or it doesn’t. After the midterm election defeat, sell-side firms are slowly coming around to the idea that this war could last a lot longer than we think. Barclays, one of the better sell-side shops over the past year, wrote a piece today thinking through the various scenarios.
My only critique is that it stops short of mapping out what the status quo actually looks like. If the US plays a war of attrition, Iran will lose, which means that Iran will disrupt the status quo either through even more escalatory attacks (Fujairah still comes to mind) or something materially disruptive like leaving the nuclear non-proliferation treaty.
Whatever the case, I have already explained in this week’s WCTW why the status quo is unsustainable.
In this memo, I want to talk about energy stock valuation, which I have neglected to discuss over the past few months. From a bottoms-up approach at HFIR, Jon and I have agreed to remain conservative in our E&P analysis. Energy is a cyclical business; no one knows where oil prices will go, so it’s better to be safe than sorry.
However, I think there will be a sentiment shift in 2027.