Energy Markets Remain Tight
In the United Arab Emirates, they’ve started building metal cages to protect vital energy infrastructure from Iranian drone attacks. It’s probably inspired by the netting that Ukraine has been erecting over streets to protect its population from drones.
In a sign of the impact AI is having on how we use the internet, AI-generated images of the UAE cages proliferate. They range from highly credible to dystopian. The image shown here is, we believe, a real one.
Russia has also started protecting its oil facilities with netting or other low-tech material to impede drones.
Like Russia’s invasion of Ukraine, the Iran War is drifting into a stalemate. Every week that passes with limited egress through the Strait of Hormuz serves to strengthen the market position of America’s oil and gas exporters.
The strongest evidence of the war’s limited impact is the price of crude oil, which has confounded many forecasters by remaining stubbornly below $100 and less than $15 above its pre-war level.
Crude oil is the only hydrocarbon product signaling equanimity.
Refined products such as jet fuel and diesel have remained elevated because of reduced global refining capacity. Ukraine’s attacks on Russian energy infrastructure have stopped their diesel exports, driving refining margins for others to a record high. The EIA reports that US stocks of Distillate Fuel Oil (almost all diesel) are close to the lowest in over a decade.
Middle East refineries have reduced output of many products including diesel and jet fuel because of Iranian attacks on shipping. RBN Energy reports that global refinery runs were down by 5.1 Million Barrels per Day in 2Q26 compared with the prior year.
The ongoing maritime disruption has also hurt Qatar’s exports of Liquefied Natural Gas (LNG), which are reportedly down 96%. They’ve managed 18 shipments since the war began compared with 509 over the same period last year. It’s why the European and Asian LNG benchmarks are the highest they’ve been since the conflict began, unlike crude oil.
Global LNG prices are now more than double their pre-war level. Europe’s inventories are also lower than usual for this time of year, partly because they held back on pricing in recent weeks which shifted flows to Asia.
It seems unlikely Qatar will return to previous volumes of LNG shipments anytime soon. Both the US and Iran seem content to wait for the other side to offer concessions. Trump may regard the mid-terms as a logical decision point, and could adopt a tougher stance after that with little near term political risk.
Because of this, the prospects for Cheniere, Venture Global and NextDecade are the best they’ve been in living memory. Yet the stocks remain cheaper than they were in March, when the conflict was in its opening stages.
Last week I noted that few Republicans I talk to regard the decision to attack Iran as a success. Then a client I’ve known for almost twenty years and whose opinion I respect, provided an alternative perspective. He noted that together with Israel we have substantially degraded Iran’s military, killed enough leaders that the new cohort can never feel safe, removed any imminent nuclear threat, decimated their economy and seen their neighbors further align with us due to Iranian attacks.
We’ve done all this with minimal US casualties and only a modest jump in crude. The continued closure of the Strait was not anticipated, but there has been limited negative impact on the US economy.
That doesn’t seem too bad – and it’s boosted the prospects for US energy exporters.
In recent years, the midstream industry has pivoted towards more modest projects with less execution risk. The shale boom of 2014-18 produced mixed results for investors. Then Covid briefly hit energy consumption.
Legal and regulatory impediments followed with the Biden administration, most famously with the chronically late and over budget Mountain Valley Pipeline which only crossed the finish line when West Virginia Senator Joe Manchin insisted on legislation to smooth its passage in exchange for supporting an increase in the debt ceiling.
The liquids pipelines added since 2025 in the EIA chart were all either within Texas or were expansions of existing pipelines which are generally harder to challenge in court.
There have been some bigger projects to move natural gas – notably improving takeaway capacity from the Permian Waha hub in west Texas where gas has at times traded at a negative price because of too much of it chasing limited pipeline capacity. That problem is now largely fixed, enabling more gas to power data centers and feed LNG export terminals on the Gulf coast.
Midstream’s approach to capex is very different than a decade ago. Projects are de-risked, generally smaller and have more predictable cashflows. Boring is good.
We have two funds that seek to profit from this environment: