As distasteful as it sounds, it’s usually the case that whenever there’s trouble in the Gulf, BP’s (LSE:BP) shares go up. With instability in the region often resulting in rising oil and gas prices, it stands to reason that the British energy giant is likely to be one of the biggest beneficiaries.
Indeed, the group’s share price is currently (15 April) 19% higher than when the current conflict started. Admittedly, it’s fallen back from its 52-week high of 609p. But BP’s shares are still changing hands for 66% more than they were a year ago.
However, with the current ceasefire just about holding, is now a good time to consider buying the group’s shares? Let’s take a closer look.
The art of the impossible
If we needed reminding, we’ve learned over the past few weeks that oil and gas prices are impossible to forecast accurately. On 10 February, the US Energy Information Administration released its short-term energy outlook. It said it expected Brent crude to average $57 per barrel in the second quarter of 2026. Today, it’s around $95, having peaked at $110 in early April.
Of course, economists can’t predict when a war will start. But the unpredictable nature of commodity prices makes it difficult to build an investment case for BP. With earnings hugely influenced by volatile energy prices, investing in the company carries more risk.
Looking into the future
However, by taking a long term view, it becomes a little easier. That’s because, despite the move to a greener world, the demand for oil is continuing to rise. Although there’s little agreement as to when ‘peak oil’ will come — I’ve seen forecasts ranging from 2030 to 2050 — we will still need hydrocarbons for decades to come.
And based on current prices, BP has over $600bn of untapped reserves. In 2025, it made its largest discovery for 25 years.
Other factors
Another positive is that the group’s trying to become leaner. It’s also working hard to reduce debt. With lower overheads and reduced borrowing costs, this is likely to help improve its margin. This should offset some of the impact should energy prices fall.
Also, due to its capacity to generate huge volumes of cash — even when energy prices have been much lower than they are today – BP has established a reputation for being a decent income share.
Of course, there can never be any guarantees when it comes to dividends. BP’s payout was suspended during the Deepwater Horizon tragedy (another reminder of how risky the sector can be) and it cut its quarterly dividend by 50% during the pandemic. However, since then, a series of gradual increases means it’s now at 75% of its pre-Covid level.
Even so, the recent surge in its share price has pushed its yield down to 4.3%. Although this is still above the FTSE 100 average, it was over 6% a year ago.
Final thought
Hopefully, the war in the Middle East will end soon. If it does, energy prices are likely to fall significantly and BP’s share price will probably drop too. On this basis, I don’t think now would be a good time to consider buying.
However, those comfortable with the sector, could take another look when current tensions ease.
