Middle East Oil Investment Dented by Iran War, Driving Companies to New Frontiers

The Iran war has dented the investment allure of the Middle East, forcing major oil companies to look elsewhere for new fossil fuel resources. The region accounts for roughly a fifth of global oil and liquefied natural gas production, but damage from the conflict is estimated to cost $1 billion a day in lost export revenues.

The closure of the Strait of Hormuz has forced producers to shut oilfields, while restarting operations and repairing damaged facilities will likely run into tens of billions of dollars. QatarEnergy estimates an Iranian missile strike could cost it about $20 billion a year in lost revenue and take up to five years to repair.

The Middle East holds about half of the world's proven oil reserves and 40% of gas reserves, but Western companies are unlikely to abandon it altogether. However, uncertainty over transit safety and the higher risk of conflagration is apt to sharply boost the cost of deploying staff, equipment, insurance, and capital in the region.

A structurally higher oil price would change the upstream calculus for energy giants, making new regions more attractive for exploration. Venezuela's vast resources could suddenly appear more appealing if the relative geopolitical risk gap between Venezuela and the Gulf shrinks.