Geopolitics, Oil Markets, & the Rising Importance of North American Energy Supply

Recent geopolitical developments in the Middle East have once again placed global energy markets at the centre of investor attention. Escalating tensions involving Iran and disruptions to shipping traffic through the Strait of Hormuz have introduced a new layer of uncertainty to global oil supply, contributing to an increase in energy prices in recent days.

While the situation remains fluid, markets have so far responded in a relatively measured manner. Oil prices have moved higher as geopolitical risk premiums have been incorporated into trading, but price movements have remained relatively orderly, with recent trading of WTI spot pricingabove US$80 per barrel range.

The primary driver of near-term price direction will likely be the duration of the conflict and the extent to which shipping routes remain disrupted. The Strait of Hormuz remains one of the most critical bottlenecks in the global energy system, with a meaningful share of global oil and LNG exports moving through the region. Even partial disruptions to traffic through the Strait can introduce volatility as markets attempt to price in potential supply constraints.

However, global energy markets are currently more diversified than they were during previous geopolitical crises. Alternative export routes in the Middle East, including pipeline infrastructure in Saudi Arabia and the United Arab Emirates, as well as the potential use of strategic reserves, may partially mitigate supply disruptions should they persist.

At the same time, the conflict highlights an important structural shift in global energy supply: the growing strategic importance of North American production.

The United States is one of the world’s largest oil and natural gas producers and exporters, while Canada ranks among the largest global producers as well. Together, Canada and the United States account for a significant share of global oil and natural gas supply. In an environment where geopolitical risks are rising in several traditional energy-producing regions, the reliability and security of North American energy supply may become increasingly valuable.

For energy consumers and importers, the reliability of supply is becoming as important as price. While oil and natural gas remain global commodities, the geopolitical stability of the producing region can influence purchasing decisions and long-term supply relationships.

From Invico’s perspective, these developments reinforce the long-term rationale behind our energy investment strategy. The Fund’s energy assets are focused on cash-flowing, long-life resource assets in stable jurisdictions within North America.

In the near term, higher spot commodity prices can support stronger operating cash flows for energy assets. However, it is important to note that portfolio valuations are driven by forward commodity price assumptions rather than short-term price fluctuations. Reserve valuations and asset marks rely on industry-published forward price decks, meaning that sustained changes to long-term price expectations (rather than temporary spot price movements) would be required to materially impact asset valuations.

As a result, while current market conditions may provide near-term cash flow benefits, the long-term value of Invico’s energy assets remains driven by the underlying fundamentals of production, reserves, and disciplined portfolio management.

Looking ahead, the key unknown remains the duration and trajectory of the current conflict. Markets will continue to assess potential supply disruptions, geopolitical responses, and the role of strategic reserves and alternative export routes.

What is increasingly clear, however, is that supply reliability is becoming a more prominent factor in global energy markets. In that environment, stable North American energy assets may continue to play an increasingly important role in the global energy system.