Macro Intelligence: what Israel-Iran tensions
mean for Australian energy investors

Israel-Iran conflict

In this week’s edition of IG Macro Intelligence, we take a deep dive into the Israel-Iran conflict and ASX stocks to watch.

Tensions rising

Escalating tensions between Israel and Iran have prompted global investors to adopt a cautious approach, while crude oil prices have spiked significantly.

In the immediate aftermath of news that Israel had attacked Iranian nuclear facilities, both Brent crude oil and WTI crude oil contracts surged as much as 13% to their highest levels since January.

WTI crude oil daily chart

The increase in tensions is raising concerns that supply could be severely disrupted, with the Strait of Hormuz representing a critical artery for global oil shipments. Roughly one-fifth of the world's oil supply – approximately 18 to 19 million barrels per day of crude oil, condensates, and refined fuels – flows through the Strait.

Peter McGuire from Trading.com.au told analysts: 'What the oil market will need to see is a very clear de-escalation. This would probably involve the US stepping in and managing to persuade both sides.

As you know, we saw the Biden administration do that twice last year, on two occasions in April and October, when Iran and Israel directly attacked each other. I think Trump is much more, far more incentivised to bring this to a halt quickly. But how quickly is he able to do it? I think there's a little bit of a question mark there.'

Energy boost

The spike in oil prices lifted Australian energy stocks to their highest levels in almost a year. The Australia 200 Energy Index had one of its strongest sessions in four and a half years following the renewed attacks.

Australia 200 five-day chart

Santos (ASX:STO)

Santos shares have also been boosted by a takeover proposal from Abu Dhabi's National Oil Company (ADNOC), worth around A$30 billion (US$18.7 billion).

Santos daily chart

Year-to-date, Santos shares are up around 14%, with ASX Tradewatch data showing they're in a medium-term rally with the five-day moving average (MA) above both the 20 and 50-day moving averages.

Most brokers are bullish on the stock, with the average recommendation a 'Buy' according to Refinitiv, with an average price target of $7.31.

MST Marquee's Saul Kavonovic cautions the takeover is not yet a done deal: 'The key risk is this FIRB (Foreign Investment Review Board) approval. Santos owns a lot of critical national infrastructure, both on the East Coast and the West Coast. We expect that Treasurer Jim Chalmers will place a lot of scrutiny on how much of that we'd want to be lying in the control of a foreign government.

I could see scope for the government to apply significant conditions on such an approval, including potentially splitting out some of this infrastructure to a different player and making commitments regarding the domestic gas market.'

Meanwhile, Gaurav Sodhi from InvestSmart thinks shareholders should accept the terms of the bid: 'You take the money and run. This still undervalues the assets. There's probably $11 or $12 worth of assets inside Santos. And that value will be extracted by the acquirer. But as a shareholder, you're not going to get access to that. So I would take the money.'

Santos historical trends and price targets

Woodside Energy (ASX:WPL)

Woodside Energy shares are down around 4% over the past 12 months compared to Santos's strong performance.

Woodside Energy daily chart

Evans and Partners analysts suggest that given the Santos takeover bid is likely to face major hurdles, investors should consider shifting into Woodside shares, writing in a 16 June note: 'We would advise investors to switch into Woodside which has better oil price leverage and catalysts.'

Most analysts suggest holding Woodside at current levels, with Morgans the most bullish on its outlook. It has an 'add' recommendation and price target of $30.10, almost 16% above the current share price.

Woodside Energy historical trends and price targets

Ampol (ASX:CTX)

RBC Capital Markets analyst Gordon Ramsey suggests Ampol could benefit from a disruption to Iran's oil supplies. 

Ampol daily chart

In a 16 June broker update, he suggested any disruption 'could lead to higher Singapore refining margins, and consequently higher Australian refining margins. We see Ampol benefiting most from this scenario, based on our expectation of Ampol posting solid Lytton refinery operational performance over 2025.'

RBC is positive on Ampol's outlook, with a target price of $29.

ASX Tradewatch data show shares are in a near-term rally, but with a longer-term bearish trend, which implies investors should proceed with caution.

Ampol historical trends and price targets

Karoon Energy

Karoon Energy shares have outperformed over the past 12 months, up almost 24%.

Karoon Energy daily chart

Brokers remain positive on the stock, with the average broker recommendation a 'Buy' with a price target of $2.01, according to Refinitiv, not far from current levels.

Morgan Stanley is least bullish with a $1.67 price target, while Ord Minnett reckons the stock can rally to $2.60 amid expectations oil prices will average US$70 per barrel in 2025 and US$80 per barrel in 2026.

Karoon Energy buy/sell indicators and analyst projections

Tough talk

US President Trump has signalled at the G7 leaders meeting in Canada that Iran is open to talks to de-escalate the conflict, however Israel's Prime Minister Benjamin Netanyahu has signalled strikes will continue.

A strike hit an Iranian state television studio during a live broadcast on 16 June, with Israel's Defence Minister taking credit for the attack.

'It's painful for both parties but I would say that Iran is not winning this war,' US President Trump said at the G7 meeting in Canada.

However, long-term watchers of Middle East conflicts and their effect on global oil supplies are confident a deal will prevail.

Peter McGuire noted: 'In most recent conflicts in the Middle East, in fact, going back quite a long time, there has never actually been an interruption of oil supplies.

There was an attack in Saudi Arabia from the Iranians a few years back that did hit a little bit of their oil infrastructure, but it didn't actually affect the amount of crude oil being shipped out of the Middle East. So there is a very strong historic precedent that oil supplies don't really actually get affected. It's in nobody's interest that this happens.'