Oil Prices Drop Below $100. Here are the 2 Developments in Iran Affecting Major Oil Stocks.

WTI, the primary U.S. oil benchmark, spiked on Sunday night when the futures market opened, hitting a high of $102.57 per barrel. However, it erased those gains on Monday, closing below $95 per barrel on reports that several countries had agreed to provide naval escorts for oil tankers in the Persian Gulf. Even with that dip, WTI is up nearly 70% this year due to the escalating conflict with Iran.

Here's a look at two developments in Iran that are affecting the oil market.

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Seeking to secure the Strait

Crude oil prices have rocketed this year amid concerns that the war with Iran will significantly impact supplies. Iran has responded to military attacks by the U.S. and Israel by striking oil tankers trying to pass through the Strait of Hormuz. Before the war began, about 20% of global oil supplies moved through this narrow waterway on their way out of the Persian Gulf.

The U.S. is seeking to secure the Strait. President Trump has asked several countries to assist with reopening it to maritime traffic. The Wall Street Journal reported late Sunday night that the Trump Administration would soon announce that multiple countries had agreed to help escort oil tankers through the Strait of Hormuz. If oil can flow freely from the Persian Gulf, it would help alleviate concerns about a global supply crunch.

While oil prices have surged since the conflict started, most oil stocks have had a more muted reaction. For example, shares of oil giants ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) are only up 3% and 5%, respectively, since the U.S. and Israel launched military attacks against Iran earlier this month. That's due to the market's belief that oil prices will settle down once the Strait reopens to oil tanker traffic.

All eyes on Kharg Island

Last week, the U.S. struck military targets on Kharg Island in the Persian Gulf. It serves as Iran's main oil export terminal, accounting for 90% of its oil exports. President Trump has threatened to strike this vital oil infrastructure if Iran doesn't allow tankers to move through the Strait of Hormuz. There have also been reports that the U.S. could send in the Marines to take over the island, seizing control of Iran's oil exports.

If the U.S. strikes Iran's oil infrastructure, it could retaliate by attacking the energy infrastructure of neighboring nations in the Gulf. Should a retaliatory attack cause significant capacity to go offline and require lengthy repairs, oil prices could rise sharply and remain elevated even if the Strait reopens.

Major oil companies won't be able to quickly offset a long-term supply disruption. It can take years to bring new oil supplies online. For example, Exxon and Chevron are developing the massive Staboek block offshore Guyana. They reached 900,000 barrels per day (BPD) of oil production late last year when the fourth project (Yellowtail) came online. They expect to increase production to 1.7 million BPD when their eighth project comes online in 2030.

Oil prices could go either way

Oil prices are very headline-driven these days. Success in sorting out the Strait of Hormuz could cause crude to cool off considerably, while direct attacks on oil infrastructure in the Gulf could send it soaring. This uncertainty will likely make Exxon, Chevron, and other major oil stocks very volatile until there's more long-term clarity on future supplies.

Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.