Geopolitical Chaos in the Middle East Emboldens Shell’s (SHEL) Revenue Ambitions

The ongoing Israel-Iran conflict has set global markets on edge, with oil prices rising as fears mount over potential disruptions in the Strait of Hormuz, a critical artery for 20% of the world’s oil. Of course, higher crude prices are a boon for energy giants, and Shell (SHEL) is well-positioned to capitalize on this opportunity.

Despite trading near its 52-week high, Shell’s valuation remains compelling, especially if geopolitical unrest continues to keep oil prices elevated. Looking at the most recent performance metrics, in Q1 2025, Shell reported adjusted earnings of $5.6 billion, with an EPS of $1.84, a 52% increase from the previous quarter.

Israel-Iran Tensions and the Oil Price Surge

The Middle East is a powder keg again, with Israel’s recent strikes on Iran’s nuclear and military targets sparking retaliation and global fears. Crude oil prices jumped over 7% to approximately $75 a barrel last Friday and have since remained elevated, with some analysts warning that prices could reach $100 or more if the conflict escalates further. According to political analysts, an all-out war between Israel and Iran is a strong possibility.

The Strait of Hormuz, a narrow chokepoint handling a fifth of global oil and significant LNG flows, is at the heart of these fears. Iran’s control over its northern edge means any closure could choke off supply, sending prices skyrocketing.

For Shell, one of the world’s largest oil and gas companies, this could be a golden opportunity. With its operations spanning exploration, production, and refining across Europe, Asia, and the Americas, Shell’s scale ensures it reaps outsized rewards when crude prices climb. Shell’s integrated model, which encompasses everything from upstream drilling to downstream refining, positions it to capture value across the supply chain, particularly when margins widen during supply crunches.

Why the Strait of Hormuz Matters

Now the Strait of Hormuz isn’t just a waterway, it’s the lifeblood of global energy. About 20 million barrels of oil per day, or 20% of global consumption, pass through this 21-mile-wide channel. Thus, Iran’s ability to disrupt or even temporarily close the strait, as some fear in a worst-case escalation, could be disastrous for supply.

Strait of Hormuz, a strait between the Persian Gulf and the Gulf of Oman.

Analysts at JPMorgan have floated $130 per barrel as a possibility, while ING warns that $150 could be reached if disruptions persist. Such intense oil price shocks are rarely suitable for smooth global economics, but for resource companies like SHEL, it could be a potent revenue booster.

Shell’s exposure to this region is significant but strategic. While it doesn’t rely solely on Middle Eastern crude, its global trading arm actively deals in oil and LNG, allowing it to pivot quickly to high-margin opportunities. If the Strait faces prolonged issues, Shell’s ability to source and refine oil from other regions, like its North American and African assets, gives it a competitive edge. Plus, its LNG operations could benefit if natural gas flows from Qatar, another strait-dependent exporter, tighten.

Shell’s Strategic Moves Amplify Its Edge

Shell’s recent decisions make it even better positioned to thrive in this environment. Under CEO Wael Sawan, the company has doubled down on its core strengths (i.e., oil, gas, and biofuels) while trimming less profitable ventures like U.S. offshore wind, which saw a $1 billion write-off in 2024. This pivot has sharpened its focus on high-margin segments, with Shell cutting $3.1 billion in costs a year ahead of schedule.

A Valuation That Screams Opportunity

At today’s share price, Shell trades at roughly 11x its consensus EPS estimate of $6.21 for 2025, a bargain for a company of its caliber. The current forward P/E ratio for the S&P Energy sector is ~16. The three-year average P/E is 11.6x, which means Shell is smack bang in the middle of the range.

Importantly, I believe that analysts haven’t yet factored in the full impact of the Israel-Iran conflict, so the effective P/E could be even lower if oil prices remain high, let alone if they rise further.

Then there’s the shareholder yield: Shell offers a solid 3.95% dividend and adds around $15 billion in annual buybacks—roughly a 7% yield—bringing total capital returns to over 10%, all while the market appears to undervalue its upside in a favorable energy environment.

What is the 12-Month Forecast for Shell Stock?

Wall Street remains highly bullish on Shell, with a Strong Buy consensus based on seven Buy and two Hold ratings over the past three months, and notably, no Sell ratings. Currently, SHEL’s average 12-month stock price target of $75.87 suggests a 6.2% upside from current levels.

See more SHEL analyst ratings

Shell Offers Discounted Upside as Specter of War Intensifies

Shell stands out in today’s market as a global energy leader trading at a discount, backed by strong shareholder returns and positioned to benefit from geopolitical tensions in the Middle East. Ongoing risks around the Israel-Iran conflict and the Strait of Hormuz could keep oil prices elevated, boosting Shell’s earnings potential.

With a low P/E ratio, a nearly 4% dividend yield, and an additional 7% from share buybacks, Shell presents a compelling risk-reward opportunity for investors seeking exposure to energy in a volatile global landscape.