Here Are 2 Energy Stock-Buying Strategies To Employ During the Iran Conflict

Key Points
Crude could continue rising or fall significantly, depending on developments in the war.
Investing in high-quality oil companies provides upside to higher prices while still thriving if they fall.
Investing in pipeline companies can remove commodity price volatility from the equation.
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Oil prices have been incredibly volatile this year due to the war with Iran. Brent oil, the global benchmark, started the year around $60 a barrel. It peaked near $120 and was below $110 a barrel more recently.
Crude could remain very volatile. Here are two energy stock buying strategies to consider amid the conflict with Iran.
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Buy oil stocks that can thrive either way
There's a high likelihood that oil prices could rise sharply in the coming weeks if the Strait of Hormuz remains closed to oil tankers or if Iran continues to retaliate against energy infrastructure in the Persian Gulf. However, crude prices would likely fall significantly if Iran agrees to reopen the Strait or if the warring factions reach a peace deal.
Given the range of possibilities, you can consider investing in oil stocks that can thrive even if oil prices fall. For example, ExxonMobil (NYSE: XOM) has focused on becoming a more profitable oil company over the years. It's investing heavily in its advantaged assets (lowest cost and highest margin) while also having a laser focus on delivering structural cost savings. Exxon's strategy has it on track to grow its annual earnings capacity by $25 billion and its cash flow by $35 billion by 2030, assuming commodity prices and margins similar to those in 2024. The oil giant's strategy would enable it to generate $145 billion in surplus cash over that period at $65 Brent oil, enabling it to continue growing its dividend (43 consecutive annual increases) and repurchase shares. Exxon's 2030 plan can create significant value for shareholders in the coming years at lower oil prices, while delivering an even bigger earnings gusher in the near term if pricing remains elevated.
Invest in pipeline stocks with minimal commodity price exposure
Another strategy is to invest in pipeline stocks. Most pipeline operators have limited direct exposure to commodity prices. Instead, they generate fairly stable cash flow backed primarily by long-term, fixed-rate contracts and government-regulated rate structures.
For example, Kinder Morgan (NYSE: KMI) gets 70% of its cash flow from take-or-pay contracts or hedging agreements, which effectively lock in these earnings. Meanwhile, the natural gas pipeline giant gets another 26% of its cash flow from fee-based sources, where it collects fixed fees as volumes flow through its energy midstream system. Only 4% of its cash flows have direct commodity price exposure, which provides some uncapped upside to today's higher prices. Kinder Morgan's stable cash flows enable it to invest in expanding its pipeline infrastructure while also paying an attractive, growing dividend (nine consecutive years). The company currently has nearly $10 billion of pipeline projects underway, giving it the fuel to grow for the next several years.
Conservative ways to invest in energy stocks
Oil prices will likely remain very volatile during the Iran conflict. Investors have a couple of strategies they can employ during this period of uncertainty. They can buy oil stocks like ExxonMobil, which can still thrive even if oil prices are lower, or invest in pipeline companies such as Kinder Morgan, which have minimal direct exposure to volatile commodity prices.
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Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.