3 Reasons the Iran War Could Send This Overlooked Energy Stock Soaring

As conflict in the Middle East has intensified in recent months, investors have made a big leap back into oil stocks -- namely, large, well-known integrated oil company stocks like Chevron and ExxonMobil. Yet while these stocks are benefiting from recent tensions and their impact on energy prices, it's not necessarily upstream or downstream energy stocks that stand to benefit the most from this trend, but a certain type of midstream energy stock.

No, I'm not talking about pipeline stocks, the most common of midstream energy plays. Pipeline operators typically have steady revenue from long-term contracts. Pipeline stocks benefit some from rising prices, but their main selling point is their ability to deliver strong, steady returns in both energy bull and bear markets.

Rather, the midstream play I'm talking about today is an oil tanker stock. In fact, the largest oil tanker operator out there is Frontline (NYSE: FRO). I'll explain why this stock offers a more direct opportunity for everyday investors to profit from the latest chaos.

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1. Disruption to the Strait of Hormuz has a direct bullish impact on Frontline

Considered the most important maritime choke point on Earth, any hindrance to the Strait of Hormuz's normal operation affects about 20% of the global crude oil supply, in turn dramatically affecting prices. However, what's even more dramatic is the impact of said disruption on oil tanker day rates.

When the Strait of Hormuz is not fully available, ships must go the alternate route, sailing across Western Africa and the Cape of Good Hope. This means it costs more money to get oil from point A to point B. With more tankers having to take the longer route, fewer are available overall.

This, in turn, leads to higher daily charter rates worldwide, not just in the Middle East. Frontline's fleet consists primarily of Very Large Crude Carriers (VLCCs). During times of strife, day rates for these oil tankers can spike dramatically, in turn significantly impacting near-term profitability.

2. Frontline benefits greatly from high operating leverage

Like other tanker operators, Frontline has a high degree of operating leverage. That is, with most of its operating expenses fixed, incremental revenue increases can flow straight to the bottom line. Even in times of modest price movement, this leads to a tremendous increase in profitability. During times when prices really spike, the impact can be even more dramatic.

We are currently seeing this play out as the conflict between the U.S. and Iran intensifies and the Strait of Hormuz remains closed. Spot VLCC day charter rates keep spiking, with the daily rate for the benchmark Middle East-to-China route hitting an all-time high of $423,736. Even if the price shock cools, prices are likely to remain elevated relative to pre-war levels.

At the start of 2026, prior to the start of this latest Mideast conflict, Frontline was reporting time charters averaging $76,900 per day. Frontline doesn't report earnings and guidance again until May, but sell-side analysts have already raised their 2026 earnings forecasts. On average, analysts estimate Frontline will report earnings of $3.62 per share this year, more than double last year's reported earnings.

3. Analysts and investors are conservative about this tailwind

Even as a possible resolution appears murky, sell-side forecasts also view this tailwind as having only a temporary big impact on earnings. While estimating earnings well north of $3.50 per share in 2026, 2027 calls for EPS to fall back to around $2.35 . Considering this, you may think Frontline is pricey after its run-up from around $20 to just over $33 per share.

However, if elevated rates persist and Frontline's earnings beat expectations, forget about this stock climbing back toward recent highs just under $40 per share. A further re-rating could occur if anticipated earnings for 2026 and 2027 increase from current levels.

That's not all. In the meantime, Frontline has a dividend yield of 5.2%, making this stock one of the most interesting opportunities among high-yield dividend stocks right now.

If you're skeptical that the oil price shock will last, feel no need to dive into this stock. However, if you believe these issues will resolve soon, Frontline offers a great way to add exposure to this sector to your portfolio.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.