The Viewpoint: The last ever energy crisis?

It would seem the war between the US and Iran is now over. Who won and who lost is beyond the scope of this blog, however the consequences of the war are important for investors. With oil retracing a big part of its rise from when the war started, what are the key takeaways?

The first is how much the energy sector has changed over the last few decades. If we take 2001, when the September 11 terrorist attacks began the lead up to a different Middle East war, oil has reduced from around 38% of the total global energy mix, to around 30% today. This has been replaced by renewables at 9%, versus less than 1% in 2001. While this may not seem a big difference, it does highlight that the global energy mix is becoming less oil intensive.

At the same time the quantity of oil reserves is believed to have increased markedly too. Unconventional sources such as shale, oil sands and new discoveries of conventional ones such as in Venezuela have increased provable reserves from around 1trn barrels in 2001 to 1.6trn today. Far from running out of oil, the world has too much of it and needs it less in the future. This is the important backdrop for any energy crisis.

Perhaps it is no surprise that in a fundamentally oversupplied market the impact of disruptions is less. Yes, oil rose from $60 to $110 (at the time of writing oil is around $70). But this was far less than the bearish analysis around the consequences of removing 20% of the world’s oil supply from the market.

Perhaps it is no surprise that in a fundamentally oversupplied market the impact of disruptions is less.

An investor now needs to ask, if the closure of the Strait of Hormuz is not sufficient to increase oil prices meaningfully, what can? And if the trend continues to alternative sources of energy – which includes nuclear as well as renewables – and reserves of oil continue to increase, what will that mean for future prices? It may well be the world has just seen its last energy crisis.

The second implication for investors could be the changing nature of warfare. Understandably, many defence companies performed strongly because of the wars in Ukraine and Iran. It would appear however that both the US and Russia in their actions have made the classic mistake of fighting the last war. Drone warfare has fundamentally changed the battlefield. Drones which cost $10,000 are being shot out of the sky by $2m missiles – which clearly makes no sense economically – while the US Navy with all its power could not enter the Strait of Hormuz. In Ukraine, the war has turned against Russia as drones are used to retake land.

This is of course not to say that large scale equipment such as submarines, aircraft, ships and missiles will not be needed in the future. But they are already becoming less impactful versus cheaper forms of weaponry. Defence expenditure will also continue to rise in the future as NATO realises it cannot rely on the US as much. How it is spent though could be different to expectations. This could be why defence stocks have started to underperform. We have hopefully reached peak war, and a peak in the use of historical forms of weaponry.

It’s still a bull market

We have been in a bull market since 2009, when the financial crisis ended. Since the US market low in March 2009, the S&P 500 has risen nearly 1000%. This equates to a nearly 15% per annum return for investors. The only thing, and the hardest thing, investors have had to do is hang in there. In that time there has been four market falls of more than 20% (the technical definitions of a bear market) – these being the eurozone crisis in 2011, trade war scares in 2018, Covid in 2020 and the inflation scare of 2022. As well as these, there were a further eight instances of falls more than 10% (pullbacks). Through each of these scares and crises, it was much more tempting to sell than buy. But each one was a buying opportunity.

One day this bull market will end, as they always do. But when no one knows when. The end of the last great bull market, which lasted from 1982 to 1999, was crowned by the internet bubble. This has some commentators drawing comparisons to today. This is also year 17 of this bull market, and AI is accelerating it. This brings concerns of a bubble, irrational exuberance and other things which existed in 1999.

As discussed in the last blog, I’m open minded as to if AI is a bubble or not. Concluding it is doesn’t seem sensible given AI will be the biggest technology transformation of our lifetimes. But having seen how momentum-led bull markets become towards their end in the past, it would be wrong to not acknowledge echoes of that in today’s markets.

It does seem to me that it won’t be geopolitics which ends this bull market. It is more likely it will end due to the huge amounts of capital being spent on AI not making a reasonable return. That is what popped the internet bubble. This could be because take-up disappoints once subsidies on its usage are removed, or its progression is halted by a lack of social acceptance. The internet bubble in the end popped under its own weight as the extremity of valuations could not be supported by the growth, margins and returns delivered by the companies who benefited from it. In time we will learn if AI is truly different this time.

It does seem to me that it won’t be geopolitics which ends this bull market

May you live in interesting times!

At the end of the first half of 2026, it is time to reflect on what has been an unusual news-heavy six months. The capture of the Venezuelan president (January), the attempt to annex Greenland (January), closure of the Strait of Hormuz (February), Energy shock (March), historic rally in semiconductor stocks (April), and the US/China summit (May) are some of the more major events. What will happen in the remainder of the year no one knows.

Overall, though, recent geopolitical shocks, particularly the US-Iran conflict and closure of the Strait of Hormuz, have had less lasting impact on markets than might historically have been expected. This reflects a world that is less dependent on oil, has larger reserves, and is increasingly shifting towards alternative energy sources. Modern warfare is also changing, with low-cost drone technology challenging traditional defence spending assumptions, while rising NATO expenditure may not benefit incumbent defence companies in the way investors expect.

Despite an unusually eventful first half of 2026, the broader equity bull market remains intact, supported by the long-term momentum of AI, although it is possible that excessive capital spending, stretched valuations or weaker-than-expected returns from AI could ultimately become the factor that ends the cycle. In my view, being constructive but selective, recognising that old assumptions may no longer hold, while AI remains both the key opportunity and the principal risk, is a good mentality for the next phase of this bull market.

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