Iran Tensions Are Hitting American Wallets. Here are the Energy Plays Worth Watching Right Now.

The price of oil has soared this year due to the war with Iran, driving up gas prices. According to AAA, the national average gas price is around $4.23 per gallon, up more than $1 per gallon from a year ago. With the average American driver using 575 gallons each year, we're on track to spend about $600 more on gas this year.

While tensions with Iran are hitting American wallets, they're a boon for oil stocks. Here are two energy plays worth watching right now.

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Chevron

Chevron (NYSE: CVX) expected 2026 to be a great year, and oil prices had nothing to do with it. The oil giant completed several expansion projects last year, which are now pumping oil. It also closed its needle-moving acquisition of Hess. Additionally, the company launched a cost-savings initiative to deliver $3 billion to $4 billion in structural cost savings by the end of this year. These factors fueled Chevron's expectation of delivering an additional $12.5 billion of free cash flow this year, assuming oil averaged $70 a barrel.

Oil will likely remain well above that level this year. The U.S. Energy Information Administration now expects oil to average about $96 a barrel this year. That would be a boon for Chevron, as every $1-per-barrel increase in the average Brent price would boost its after-tax cash flow by $600 million. Chevron will likely return much of this windfall profit to shareholders by repurchasing shares at the high end of its $10 billion to $20 billion annual target range.

Occidental Petroleum

Occidental Petroleum (NYSE: OXY) also expected 2026 to be a better year, despite its initially muted expectations for oil prices. The U.S. oil and gas giant expected efficiency gains to enable it to reduce capital spending by about $550 million compared with last year. Additionally, the company's debt-reduction plan would deliver meaningful savings in interest expense. These factors drove its initial expectation of delivering a more than $1.2 billion free cash flow improvement in 2026.

The oil company is now on track to generate much more free cash flow this year. Every $1 increase in the average annual oil price will add about $265 million to its annualized cash flow. Occidental Petroleum can allocate this windfall toward increasing capital spending, repaying additional debt, and repurchasing shares. It could also accelerate the redemption of Berkshire Hathaway's preferred equity investment, which it doesn't currently plan to start redeeming until August 2029.

Offset the impact on your wallet by investing in oil stocks

We're going to pay a lot more for gas this year due to the war with Iran. One way to mute this impact is to invest in oil stocks, which are cashing in on higher crude prices. Chevron and Occidental are two energy plays to watch as they're on track to generate even bigger profit gushers this year.

Matt DiLallo has positions in Berkshire Hathaway and Chevron. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.