Ending the Iran War without reopening the Strait of Hormuz?
That may be the real catalyst for “drill, baby, drill.”
The US rig count is down nearly 40 rigs, or 6%, since President Trump took office.
E&P executives have thoroughly embraced capital discipline in recent years.
But capital discipline has a price threshold. And a closed Strait of Hormuz would test it.
Energy cargoes largely passed freely through the Strait until the end of February.
In a world where that passage is now meaningfully restricted, energy prices go up.
If the Middle East disruptions look like they’ll endure, rather than simply being a short-term interruption during active combat, we may see more US oilfield activity.
Here’s what I think that looks like.
I’d expect to hear executives talk about being good global citizens, helping the world gain access to desperately needed energy supplies through increased US production.
I’d expect to hear statements around being a patriot, that the Iran War has noble objectives, and the oil industry needs to do its part to ensure market-focused collateral damage is minimized.
Regardless of the path through that side of the messaging, executives would have to assure shareholders that they’ll still receive plenty of cash.
I think we’d see promises that new special dividend programs would be launched, or share repurchase efforts would be expanded, so that shareholders don’t feel like they’re sacrificing.
We’d probably also see a laser focus on various returns metrics, highlighting just how much more profitable producers are at these price levels, and how the returns calculus is even more favorable for shareholders as a result.
To be clear, the Iran War developments have changed dramatically day by day.
This report about the Trump administration being willing to walk away from conflict with the Strait closed may quickly fade.
But it’s still worth thinking through what would need to happen for US drillers to take even an important first step away from the capital discipline philosophy they’ve so thoroughly embraced.
A closed Strait would change the math.
The real question is whether executives believe it stays closed long enough to change their plans.
