Iran War Oil Windfall Hits $26B as Long Trade Gets Trickier

The U.S.-Iran war pushed WTI crude to average $92.45 a barrel in the second quarter, a 27 percent quarterly jump that doubled Exxon Mobil's profit to $14.5 billion and lifted Chevron's net income nearly 400 percent to $12 billion. International oil prices averaged around $96 a barrel in the period, up 45 percent from a year earlier.

"If you're making a play on oil because of geopolitics in a six-month period, you are not investing; you are gambling," said Dave Nadig, an analyst at ETF.com. "The trades were literally intraday reactions to things blowing up in the Persian Gulf."

The earnings bonanza extended beyond the supermajors. Valero Energy's quarterly profit rose more than 400 percent year-over-year, while Chevron's refining segment saw earnings jump 500 percent as gasoline and diesel prices climbed. Valero estimates the world remains five million barrels short per day of global refining capacity and more than 100 million barrels short of oil inventories. Chevron's U.S. production hit an all-time high of about 2 million barrels per day, with worldwide output at 4 million bpd, up 20 percent from a year earlier. Shell's second-quarter earnings tripled to $10.82 billion, while Norway's Equinor also reported a surge in profit, the companies said this week.

"It was a quarter that was really defined by really unprecedented supply disruptions," Neil Hansen, Exxon's chief financial officer, said in an interview. Exxon shares fell roughly 3 percent in early trading Friday, while Chevron's climbed 2 percent.

The question for investors is whether to hold. Oil prices have seesawed between $72 and $120 a barrel since the war began in March, and WTI was trading under $85 as of Friday after President Trump indicated a potential deal to reopen the Strait of Hormuz. Prices fell more than 5 percent over the past week on bets that the situation in the Middle East would improve. CFRA analysts went underweight energy shortly after the conflict started, projecting WTI at $60 a barrel over the medium term.

The run in energy stocks began before the war, attracting inflows since President Trump's election in November 2024. Year-to-date, the United States Oil Fund returned 87 percent, the United States Brent Oil Fund 78.1 percent, and the Invesco DB Oil Fund 76 percent. The VanEck Oil Refiners ETF gained 44.6 percent, while the State Street Energy Select Sector SPDR ETF rose more than 30 percent.

Volatility Cuts Both Ways

Short-term traders favor futures-based ETFs like DBO because they track spot prices more closely than equities and are therefore more volatile, said Aniket Ullal, head of ETF research and analytics at CFRA. Trailing one-year volatility for XLE stands at 21.1 percent, compared with 38.6 percent for DBO — exactly what attracts speculators and drives swings in the funds themselves, Nadig said.

For long-term investors, volatile markets reacting to geopolitics are too difficult to read, said Bryan Armour, director of ETF and passive strategies research for North America at Morningstar. "Lower cost, better diversified, broader investment themes tend to work better," Armour said.

Beyond the War Trade

CFRA's outlook for WTI crude sits closer to $60 a barrel, Ullal said, pointing instead to energy ETFs with diversified exposure that includes natural gas. He expects natural gas to benefit from AI-driven demand as more data centers come online, making infrastructure funds such as the Alerian MLP ETF and First Trust North American Energy Infrastructure Fund attractive.

Nadig pointed to uranium and nuclear energy ETFs, which attracted $5.67 billion between Trump's election and the start of the war. The VanEck Uranium and Nuclear ETF has sold off this year, but Nadig called it another AI-powered trade with longer-term prospects.

The last time oil prices moved this violently on geopolitical shocks was the 2022 Russia-Ukraine war, when WTI spiked above $120 before retreating to the $70s within six months. That precedent suggests the current war premium could unwind just as quickly if a diplomatic resolution emerges.

For investors who rode the oil boom, the decision comes down to whether they are trading the conflict or building a portfolio. "We're kind of firing on all cylinders, which is good, because the world needs it," Chevron CEO Mike Wirth told CNBC. But as Strait of Hormuz reopening talks advance, the market's attention is shifting from supply disruption to normalization — and that shift could erase gains as quickly as the war created them.

This article is for informational purposes only and does not constitute investment advice.