- Oil shocks—driven by policy, pandemics and war—regularly expose the fragility of the global energy system, as seen in events from the 1973 embargo to today’s disruption in the Strait of Hormuz.
- These shocks have sweeping macroeconomic consequences, including surging inflation, recessionary pressures and rapid reallocation of investment towards more stable jurisdictions and domestic energy development.
- Long-term mitigation lies in accelerating alternatives to oil’s biggest end uses—gasoline, diesel, jet fuel and heating—through EVs (BYD, Tesla), sustainable aviation fuel (Neste) and nuclear power (Constellation Energy) to build a more resilient, diversified energy future.
The price of oil is at the heart of the global industrial complex, as most companies depend on it to remain productive and most consumers rely on it to get themselves from A to B, with the commodity baked into the cost of moving goods, growing food, flying planes, heating homes and producing everyday materials. Unsurprisingly, a shortage, perceived or actual, holds potentially disastrous economic consequences.
This article is a journalistic opinion piece which has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
In this article, we’ll discuss the nature of oil shocks, such as the present one prompted by the US and Israel’s war with Iran, analyzing historical causes and their consequences, which should help us determine where to invest to foster a more sustainable energy supply chain, one independent of places, regimes and routes whose outsized influence can sometimes veer away from the common good.
What causes oil shocks?
From a fresh signature on disruptive legislation, to international animosity, to an unknown pathogen, the oil market is constantly at risk of taking a volatile turn.
Policy
During the 1973 oil embargo, Syria and Egypt invaded Israel to reclaim territory it had seized six years earlier, including the Sinai Peninsula, the Gaza Strip, the West Bank and East Jerusalem.
A number of Western nations soon came to Israel’s aid with military force, leading the Organization of Petroleum Exporting Countries (OPEC) to retaliate with severe production cuts, as well as export bans on Western nations across the world, including to the US and Canada.
A barrel of oil went on to quadruple in price from US$3 to US$12 over a few short months, causing a recession that cut the S&P 500 by about 40 per cent the following year.
Natural disasters
During the COVID Pandemic, with commercial activity all but halting to a standstill, owning oil became a money-losing proposition, with WTI oil futures turning negative for the first time in history in April 2020, falling from US$18 to -US$37 per barrel.
Vaccine optimism prompted prices to rebound by year-end, reaching the US$50 mark, supported by OPEC delaying planned production increases to prop up the market.
War
Presently, within the Strait of Hormuz, about 8 million barrels of oil and 10 million barrels of liquid fuels per day are being left stranded, representing the largest supply disruption in the history of the oil market, according to data from the International Energy Agency, with the price of WTI remaining near US$100 per barrel, up by 50 per cent since the war began in late February.
India, Japan, Korea and China are enduring the brunt of the closure, with their dependency on Middle East oil ranging from 50-95 per cent and Middle East gas from 11-66 per cent, according to a report from RBC Economics.
With US President Trump currently reviewing Iran’s peace proposal, which does not include the cessation of its nuclear program – a key catalyst behind the conflict – and attacks continuing between Iran and Lebanon despite the April 17th ceasefire, the prospects for a resolution are dim at best.
In essence, a stretch of water, less than 40 kilometres wide, is holding the world’s most important commodity hostage, shaking markets and putting governments into high alert, highlighting the fragility of the global oil supply chain and the need for a more diversified approach to meeting energy demand.
But before we can offer solutions to our dependence on oil, we must understand the steep price to pay if we lean into the status quo.
What are the consequences of an oil shock?
Given that oil is so intricately tied into the economy, a supply disruption, regardless of the reason, will have far-reaching effects that investors can learn from, exploit and guard against.
Inflation
While the Bank of Canada and the US Federal Reserve were widely expected to cut interest rates over the near term, responding to slowing business activity and consumer spending driven by US tariffs, the Iran war has since rendered this framework inapplicable.
RBC Economics sees sustained US$80 oil raising inflation from 2.2 to 2.5 per cent in Canada, and from 2.7 to 3.1 per cent in the United States, well above the 2 per cent target shared by their respective central banks.
These ranges proved accurate in March, with Canadian inflation rising to 2.4 per cent year-over-year (YoY), up from 1.8 per cent in February, while US inflation rose to 3.3 per cent, up from 2.4 per cent in February, as surging gasoline prices forced drivers to crunch numbers before filling up their tanks.
Recession
The 1973 oil embargo, by spiking the price of oil, also caused about a 45 per cent increase in gas prices for US consumers, leading to a government fuel rationing program and lower speed limits to conserve domestic supply. Similar measures were also put in place abroad, with the United Kingdom instituting a three-day work week and numerous European governments outlawing driving on Sundays.
Higher fuel prices contributed to US inflation climbing from 3.4 per cent in 1972 to 12.3 per cent in 1974, affecting a broad subset of consumer goods, with the unemployment rate doubling to 9 per cent from 1973 to 1975. It took US Fed Chairman Paul Volcker raising interest rates to 20 per cent in 1980-81, resulting in a more pronounced recession, to finally get inflation under control.
The recession, felt primary among Western nations, led to a plethora of government investments into fossil fuel alternatives and energy self-sufficiency, setting the foundation for the ongoing renewable energy transition.
Capital reallocation towards de-risked jurisdictions
As the war between the US-Israel and Iran continues to ignite tensions across The Middle East, investors are withdrawing their capital form the region and moving it into calmer markets, including North America and strategic Asian countries, where a stronger rule of law is more likely to lessen volatility over the long term.
Concurrently, governments are expediting domestic oil and gas and renewables development to bolster energy independence and national security, regardless of market conditions.
When it comes to Canada, China stands as the country’s largest non-US oil export destination, with South Korea buying up most of its liquid natural gas, highlighting a potentially larger role to play in securing Asia’s fuel supply. Prime Minister Mark Carney has been actively fostering this potential, as evidenced by his January 2026 meeting with President of China, Xi Jinping, to form a new partnership centred on energy, food and trade.
Which stocks should you invest in to prevent oil shocks in the future?
If the goal is to minimize the effects of future oil shocks, we must lay out a barrel of oil’s top use-cases, which will allow us to enquire about the companies doing the most promising work to replace these use-cases with more sustainable alternatives. According to Visual Capitalist, a barrel of oil is sliced up and shipped off to the following end markets:
- 42.7 per cent gasoline.
- 27.4 per cent diesel.
- 5.8 per cent jet fuel.
- 5 per cent heavy fuel, with two-thirds allocated to shipping fuel and one third to domestic and commercial heating.
- 2 per cent to hydrocarbon gas liquids for stovetops, plastics, rubber, paint and solvents.
- 10.1 per cent for a diversity of industrial applications spanning tires, lubricants, candles and ink, among many others.
We can now see that the direct line between oil and macroeconomic chaos is most prominently represented by gasoline, diesel, jet fuel and heavy fuel, offering our due diligence a clear direction towards major players disrupting these industries and shaping the future of sustainable energy.
Electric vehicles
When it comes to investable companies meaningfully reducing our dependence on gasoline and diesel, BYD (USOTC:BYDDF), the world’s largest electric vehicle company, should be top of mind.
BYD’s sales surpassed Tesla (NDAQ:TSLA) for the first time in 2025, delivering 4.6 million vehicles, up by 7.7 per cent YoY, which is equivalent to displacing tens of millions of barrels of oil per day. This is well ahead of the Elon Musk-led producer’s 1.63 million vehicles, which was down by 8.6 per cent YoY, marking its first-ever drop in annual deliveries.
Unlike Tesla, BYD benefits from control of its entire battery and semiconductor supply chain, as well as a leading presence in the Chinese market, allowing it to produce vehicles at lower prices that appeal to a wider consumer base than Tesla’s more luxurious models.
Both companies reported lower profits in 2025, according to data from Yahoo!Finance and TechCrunch, reflecting increasing competition as more companies attempt to monetize EVs’ outsized role in the renewable energy transition.
Sustainable aviation fuel
In the realm of sustainable aviation fuel, Neste (USOTC:NTOIF), a company based in Finland, is the clear market leader, with 1.5 million tons per year in production capacity across its domestic, Singapore and Netherlands refineries, with work ongoing to expand this figure to 2.2 million tons by 2027.
Neste’s fuel, made from renewable waste and residue raw materials, including used cooking oil and animal fat waste, allows it to reduce greenhouse gas emissions by up to 80 per cent compared to conventional, oil-based jet fuel – a strong value proposition it also offers to the marine sector – granting the company a high-profile client roster including Air France-KLM, Lufthansa, United Airlines, DHL Group, Amazon Prime Air and FedEx.
The company posted attractive financials over the past two years, growing EBITDA by 43 per cent to €1.43 billion, operating profit by 1,912 per cent to €503 million and earnings per share (EPS) by 258 per cent to €0.19, all while maintaining annual revenue of approximately €20 billion, making a high-conviction case for delivering on an ongoing performance improvement program expected to result in a €350 million EBITDA run-rate improvement by the end of 2026.
Nuclear power
With options to increase your exposure to gas, diesel, jet fuel and marine fuel alternatives now in place, we’ll wrap things up with nuclear power, the most sustainable energy source to displace fossil fuels used in the heating of domestic and commercial properties, boasting a zero-emission profile and a 92.5 per cent capacity factor – or time spent generating maximum power – well ahead of natural gas’ 56.6 per cent.
A top stock worth considering in this regard is Constellation Energy (NASDAQ:CEG), which stands as the largest private-sector power producer in the world and the largest producer of clean energy and nuclear energy in the United States, hosting 55 gigawatts of capacity capable of powering 27 million homes.
Constellation has been translating its leadership position into solid operational performance as of late, with 2025 marking its fourth consecutive year of full-year earnings exceeding the midpoint of the company’s guidance range.
Looking into 2026 and beyond, the company sees a path to base EPS growth of at least 20 per cent through 2029 backed by US$3.9 billion in growth projects expected to yield strong returns, nearly 10,000 MWs of long-term energy deals in place and a multitude of channels primed to secure additional contracts.
Takeaway
While the global shift away from oil and gas towards renewables is accelerating, the consensus is that it will be decades before our dependence on fossil fuels is meaningfully reduced, as more EV charging stations are slowly brought online to match the convenience of a trip to the gas station and more nuclear power plants make the switch from legacy electricity production as easy as the click of a button.
Although this means more oil shocks are likely in our future, their impact can be softened by greater awareness and support of the alternatives at hand, requiring that investors adopt a long-term time horizon to optimize their chances of earning compelling returns from our increasingly zero-emission future.
Join the discussion: Find out what investors are saying about renewable energy stocks on the BYD Company Limited, Tesla Inc., Neste Oyj and Constellation Energy Corp. Bullboards and make sure to explore the rest of Stockhouse’s stock forums and message boards.
