How Oil Sanctions Against Iran Impact Energy Stocks

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Exxon Mobil

Crude oil is arguably the most important commodity in the world today. All eyes are on crude oil prices and its dynamics because no country can satisfy its domestic oil demand independently and because countries rely heavily on oil for industrial and retail uses. According to International Energy Agency (IEA), at present price levels, oil import bill could reach as high as $2 trillion in 2012, which would be near 3.3% of global GDP of almost $60 trillion. Let’s look at how inflated oil prices can impact some of the oil & gas and energy companies like Chesapeake Energy (NYSE:CHK), Exxon Mobil (NYSE:XOM), Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL).

See Full Analysis For: Chesapeake | Exxon Mobil | Baker Hughes | Halliburton

Iran’s efforts to enrich nuclear fuel hasn’t been accepted positively by western nations, especially in the U.S. As a result, to paralyze the Iranian economy and tumble their nuclear ambitions, several countries led by Europe and the U.S. have leveled sanctions against Iranian oil. U.S. President Barack Obama has been scouting for and endorsing alternative resources for oil and after consultation with major oil exporters has decided to raise the sanctions against Iran oil imports.

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Amid this political upheaval, crude oil prices have increased drastically on speculation of declining supply. While such high oil prices are unsustainable without impacting demand, in near future we do not expect prices to settle down as the global political climate relating to crude oil remains unnerving. IMF President Christine Lagarde has also expressed concerns and has warned of a 20-30% jump in crude oil prices. While this could impact overall economic growth, this is a great opportunity for oil and gas as well as oil services companies in the U.S.

Oil and Gas Production Companies Like Exxon Mobil

For oil and gas companies, this environment creates opportunities to ramp up the production and try to satisfy the domestic U.S. demand and grow exports. We believe that the average oil prices and production volumes will be impacted. Below is the realized sales price for oil and natural gas liquids for Exxon which you can modify to see the impact on its estimated fair value.

Rig Services Providers Like Baker Hughes And Halliburton

These companies will benefit from the enhanced production requirements, and hence, would be able to claim higher realizations per rig. Below you can see how higher realizations per rig can impact the stock price estimate for Baker Hughes.


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