While the human cost and geopolitical chaos unleashed by joint US-Israeli strikes on Iran demand sober assessment, the oil and gas industry will not mourn USD 60/bbl crude prices.

With Brent crude having hit USD 101/bbl today (13 March), stretched sector players have a lifeline, majors can focus on strengthening their balance sheets, and attention will eventually shift to whether the former might be M&A targets for the latter.

Indeed, mega-mergers involving top players like BP, Shell, and TotalEnergies could return to the agenda, with boosted cash reserves and juiced paper consideration accompanied by a renewed focus on multijurisdictional scale in the pursuit of energy security.

But we shouldn’t run ahead of ourselves. The question remains as to how soon such activity can realistically be progressed while asset prices remain so much in flux.

“The current volatility in commodity markets is likely to pause most near-term dealmaking, as it becomes difficult for buyers and sellers to find common ground on valuation,” according to Luke Kanczes, head of oil and gas at sector advisory Gneiss Energy. Crude pricing close to USD 100/bbl would “certainly help” M&A eventually, but “more important will be stability, rather than the absolute number.”

In the meantime, holders of large oil and gas equity stakes can offload opportunistically into the stock market. Accelerated bookbuild transactions require no marketing fanfare and a window of even just a few hours can be sufficient to close a deal.

There’s been a rush to do so, benefiting from share price rises in the wake of the Iran conflict erupting on 28 February, a sector banker noted.

That’s clear from the data. So far in March, we’ve seen USD 3.86bn in oil and gas follow-on volume – more than any complete monthly haul in the past year, according to Dealogic data. Total ECM issuance, including IPOs and convertible bonds, sits at USD 5.37bn over 16 deals in the same period.

The largest follow-on so far has been Lyndal Stephens Greth’s USD 1.9bn sale of a 3.91% stake in Nasdaq-listed Diamondback Energy, priced at a near 15-month high.

Encap, Oaktree, and the aforementioned Diamondback were among the first out of the blocks, engineering a USD 798m sell-down in Nasdaq-listed Viper Energy on 2 March. The other side of the pond, EIG offloaded a GBP 153m (USD 205m) stake in London-listed Harbour Energy on 11 March.

This speed of execution is in marked contrast to M&A-focused advisors’ dealflow projections. Even among ongoing situations, extreme price volatility appears to have slowed progress to a snail’s pace.

An eye-catching example is the USD 20bn-plus sale of Russian major Lukoil’s sanctioned international oil and gas assets. A dizzying maze of geopolitical complexity even before the Iranian episode, this situation is a rare example where the conflict itself has a greater impact than its effect on the underlying oil price.

As one source put it to Mergermarket, there are only two ultimate decision makers on the Lukoil deal: US President Donald Trump and Russian President Vladimir Putin.

While consequential if maintained at a higher level for a long period, only where bid deadlines are imminent will the current crude price be an acute valuation concern, the sector banker argued. Most oil and gas M&A is about the long burn, he added.

With Iran’s theoretical chokehold over the Strait of Hormuz now proven in practice, Iran’s leadership likely wants to sustain economic disruption to make the US and Israel think twice about maintaining their strikes or launching them again in future. Alongside inevitable insurance premium hikes related to all the above, this makes it a fair bet the oil futures curve will steepen.

This will come as a relief to those oil and gas players that had endured balance sheet pressures amid bearish oil prices.

“For more highly leveraged producers, higher commodity prices provide a welcome relief,” Kanczes agreed. “Companies facing balance‑sheet pressure benefit immediately through improved cash flow, stronger covenant headroom and improved refinancing options, reducing the likelihood of near‑term, distress‑driven M&A or restructuring,”

E&P companies likely to have their debt pile positively impacted include Ithaca Energy and EnQuest, while services companies such as DeepOcean, Viridien, and TGS could also see a bump to their credit profiles, according to a Debtwire report on 10 March.

Another mid-tier company facing credit challenges is Tullow, which announced a refinancing and lock-up agreement with 66% of its noteholders and major creditor Glencore in February. The company – which has seen its share price drop from highs of over GBP 13.00 in 2012 to below 15-pence-per-share today – will see its year-end net debt reduce to USD 1.36bn. Tullow’s shares are up 33.8% so far this month.

These kinds of stock movements are less about reacting to the short-term rise in crude prices and more focused on asset allocator diversification, playing into the increased salience of energy supply security and a perceived over-reliance on certain jurisdictions and companies, the banker said,

Through this prism, institutional investors who have been short on oil and gas for a long time are now looking to become more equal weighted, this banker said.

Indeed, this latest conflict’s acute impact on energy markets follows upheavals from Russia’s invasion of Ukraine in 2022 and the US extraction of Venezuelan president Nicolás Maduro earlier this year. This rolling instability is likely to accelerate policies and strategies focused on the domestication of oil and gas production.

“These events reinforce the need for long‑term investment in energy transition technologies, particularly those that enhance energy system resilience,” Kanczes said. Energy expert and Oxford University Professor of Economic Policy Sir Dieter Helm has argued European energy transition can only be achieved alongside tapping more secure supplies of fossil fuels, in the case of the UK by exploring further in the North Sea.

Safe‑jurisdiction premia will consequently widen in this environment via lower implied discount rates, Kanczes said, noting that countries such as Norway and Brazil stand to benefit from their relative geopolitical stability.

Energy security is particularly sensitive in Europe given the continent’s reliance on gas, with so much of its supply coming from liquefied natural gas (LNG) that passes through the Strait of Hormuz, having largely dropped Russian sources.

There is far less flex in the system around gas than oil, a sector lawyer said, because there are not the same strategic storage stocks. OPEC cannot open the spigots to push the price down in the same way as with oil, he noted.

Gas transmission, gas pipelines, and everything else related to this will be affected, with M&A dented in the short-term by price volatility but supported long-term impact on those companies that are exposed to European security of supply.

Oil majors with assets spanning multiple jurisdictions and plugged into both crude and LNG supply chains stand to benefit from their scale in this landscape. This will afford them the luxury of seeing how the dust settles before making any strategic moves.

“The majority will use this period to strengthen their balance sheet and maintain capital discipline, with continued reinvestment into core areas, especially where projects are already well advanced,” Kanczes said.

For oilfield services, the near‑term picture is mixed. Higher prices can stimulate activity, but supply chain dislocation, labour constraints, and cost inflation could temper dealmaking, Kanczes said, noting that M&A is more likely to occur around capabilities that directly support low‑cost production and de‑bottlenecking.

This pursuit of security and resilience is perhaps more significant than the short-term impact of crude and share prices on oil and gas M&A.

Nearly all M&A has a significant energy commodity element to it because input costs ultimately become a valuation issue, particularly so for the European manufacturing industry and other high consumers of fossil fuels, such as data centres, the lawyer said.

“Energy markets inevitably affect costs across industries and feed into inflation, and electricity prices feed directly into industrial margins, therefore sustained instability will have a negative impact on economies worldwide,” Kanczes said.

War is bad for everyone, the lawyer agreed. Even if hostilities were to cease today, the structural impact on investment decision making will be long-lasting.

Yet the lights need to stay on. And plenty of capital will change hands in an effort to ensure they remain so.