By Avi Salzman
Every 20 years or so, Americans get a new geography lesson about the Middle East -- and this time it's a lesson on the Strait of Hormuz, the waterway through which most of the region's oil flows.
The strait is an important transportation point for 20% of the world's oil and large amounts of liquefied natural gas, chemicals, and other products. The cease-fire that President Donald Trump announced on Tuesday was supposed to "open" it, but the waterway's fate remains undetermined. For now -- and perhaps for the long run -- Iran is asserting control, determining which ships can pass and under what conditions. In the first two days after the cease-fire, just a handful of vessels made it through.
Iran has discovered that controlling the strait "is probably a much more powerful deterrent than being a threshold nuclear power ever was -- and having discovered this, is probably unlikely to ever roll it back," said Daniel Sternoff, a senior fellow at Columbia University's Center on Global Energy Policy.
That puts the rest of the oil-producing countries that abut the Persian Gulf in a bind. Even if the "fee" that Iran charges to use the waterway is modest -- some reports suggest it will be $1 a barrel -- the simple fact that Iran gets to call the shots is unacceptable to most Gulf coast countries. "That is not freedom of navigation. That is coercion," Sultan Al Jaber, head of the Abu Dhabi National Oil Co., wrote on LinkedIn on Thursday.
To get around that problem, most Gulf countries are likely to start building other pathways to get their oil out. Saudi Arabia already has an oil pipeline to the Red Sea, and the United Arab Emirates has one that takes oil around the strait to the Gulf of Oman. Analysts expect those countries to expand those bypass routes, and for their neighbors to follow suit.
"There will be a big impetus now to expand those bypass pipelines," said Robin Mills, an energy consultant based in Dubai.
Those investments should benefit firms that help build the infrastructure. Among the companies that have built pipelines and other infrastructure in the Middle East are Italian engineering and construction company Saipem, which worked on the Saudi East-West pipeline. Saipem has also done jobs for Qatar and Kuwait, both of which may be looking for workarounds to the Strait going forward. The company's shares are traded on the Milan exchange but also trade over the counter in the U.S.
In the coming years, Saipem should become an even bigger player in international markets, including the Middle East -- it's planning to merge with offshore oil-services company Subsea 7. Analysts see Saipem's earnings per share rising 50% this year. Shares are up 70% in 2026, but still trade at a reasonable 17.5 times expected earnings this year.
Another important player in the Middle East is SLB, the largest international oil-services company. SLB, formerly Schlumberger, has lately expanded its business in countries like Iraq and Saudi Arabia. In the near term, the war has clearly hurt SLB, which told investors last month that the fighting would reduce first quarter earnings by six to nine cents per share, or more than 10% of its expected earnings.
The stock, which rallied earlier in the year, is approximately flat since the war began. Citigroup analyst Scott Gruber argues that the war's impact on SLB's earnings could be even worse than the company initially said, given the fact that Iraq and other important SLB clients have had to curb production due to the conflict. But he expects the stock to rebound, "reflecting the potential for an upstream spending recovery post the Middle East conflict, balanced against the risk of further activity disruptions." He sees shares rising to $59 from a recent $52.
Iran may have gained a valuable bargaining chip. Its neighbors will spend heavily to reduce its worth.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 10, 2026 12:03 ET (16:03 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments