Oil Has Doubled From $70 to $100-Plus Since the Iran War Began. How to Position Now.

Key Points

Oil prices have surged due to the war with Iran and could remain elevated long after it ends.

Taking a more defensive positioning with your portfolio could be a wise strategy.

It would also be smart to consider adding some offense by investing in oil stocks.

• 10 stocks we like better than Chevron ›

Brent oil, the global benchmark price, has soared from around $70 a barrel earlier this year to more than $100 in recent days. Oil could remain high for the rest of this year even if there's a peace deal, due to the time needed to reopen the Strait of Hormuz. In addition to clearing sea mines, it will take months to restart oil wells shut-in due to the war.

Here's a look at how to position your portfolio for the prospect of higher oil prices in 2026.

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Play some defense

Higher oil prices are already affecting many energy-sensitive industries. Airlines have started canceling some future flights due to high jet fuel costs and projected future shortages. High gasoline prices could begin to affect consumer spending on discretionary purchases, such as travel and entertainment. If energy prices keep rising, the global economy is at an increased risk of a recession.

Given these risks, you should start positioning your portfolio for a downturn by reducing your exposure to cyclical stocks. Airlines, hotels, and non-discretionary retailers (including restaurants) have the highest risks in the current environment due to the impact of higher fuel costs on their operations or demand for their services.

Additionally, now is the time to consider adding some more defensive stocks to your portfolio, such as non-discretionary retailers, consumer staples, utilities, and blue chip dividend stocks. A great option to consider is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It owns 100 high-quality dividend stocks, including many top consumer staples and healthcare companies known for paying durable, growing dividends.

Go on the offensive

The prolonged closure of the Strait of Hormuz will have a lasting impact on the oil market. Oil supplies won't return to normal immediately after reopening. Meanwhile, even as the supply picture improves, demand will likely remain elevated as countries restock their national emergency oil stockpiles, which they're currently draining to cover the shortfall.

You can capitalize on higher oil prices by investing in oil stocks. One top option to consider is Chevron (NYSE: CVX). The oil giant only needs oil to average $50 a barrel to cover its capital spending plan and dividend this year. As a result, it's generating a gusher of free cash flow with crude prices double that level.

An alternative to investing directly in an oil stock is buying an exchange-traded fund (ETF). You could buy a top oil ETF, such as the State Street Energy Select SPDR ETF (NYSEMKT: XLE). That fund holds all the energy stocks in the S&P 500, which are the industry's largest players. It currently has 22 holdings, including Chevron (second-largest at 16.8% of its assets). The fund offers a low-cost way to invest broadly in oil stocks. Meanwhile, the Schwab U.S. Dividend Equity ETF also provides meaningful exposure to energy stocks (16.9% of its assets). Chevron is among its top holdings, accounting for 4.1% of its assets.

Position your portfolio for higher oil prices

The prolonged closure of the Strait of Hormuz likely means oil prices will remain elevated for much longer than initially expected. As a result, you should consider playing some defense by reducing your exposure to cyclical stocks and buying more defensive holdings, while also going on offense by adding oil stocks. This strategy should help your portfolio withstand the impact of persistently high oil prices.

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Matt DiLallo has positions in Chevron and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Chevron. 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.