Why the Shell share price is bucking the trend as Middle East tensions rattle global oil supplies

If you're keeping an eye on the markets this morning, you'll have spotted one ticker standing out from the pack: the Shell share price. This isn't just a fleeting spike. Behind the scenes, chatter on trading floors and whispers from my own contacts in the Gulf suggest we're witnessing a genuine shift. The latest escalation between Iran and the US-Israeli axis has crossed a line that even seasoned oil traders never thought they'd see crossed.

Let me paint you the picture, straight up. Over the weekend, a senior advisor to the Iranian Revolutionary Guard went on state TV and basically declared war on the Strait of Hormuz. His exact words, passed on by a source who was watching, were that Iran would "set fire to anyone trying to pass through." That's not just rhetoric; it's a promise to choke the world's most critical oil artery. Roughly one in every five barrels of global crude moves through that narrow channel. Right now, shipping has slowed to a crawl, and some operators have simply stopped scheduling transits.

Brent crude reacted instantly, punching through US$80 a barrel and extending gains for a third straight session—a run we haven't seen since the early days of the Ukraine war. But crude is only half the story. The real fireworks are in the LNG market. Word from inside Qatar's Ras Laffan facility is that production has been halted following the attacks. European gas prices surged more than 50% on Monday. Anyone who remembers the winter of 2022 knows what that means for household power bills and the cost of doing business.

The inflation headache that won't go away

Now, let's talk about the elephant in the room: the Reserve Bank. Just last week, markets were all but pricing in a rate cut by mid-year—money markets were giving it a solid chance. This morning? That's looking a lot less certain. I had a quiet chat with a former economics advisor yesterday, and his view was stark: if oil and gas prices stay elevated, our own inflation metrics could end up tracking higher than anyone was forecasting a month ago. The RBNZ can talk about "looking through" energy shocks all it wants, but when businesses see their fuel bills double, they pass it on. When Kiwi families feel the pinch at the pump, it flows through to wage demands. That second-round effect is the policy nightmare that could keep rates higher for longer, just as the economy was starting to catch a break.

So where does that leave the Shell share price? On Monday, while the FTSE 100 dropped 1.2%, Shell actually climbed nearly 2%. It's up again today in early London trade. That's the paradox of the energy supermajor: it's both the cause of inflationary pain and the only safe harbour in a storm.

But let's dig deeper. Shell's exposure to the Middle East is significant—roughly a fifth of its oil and gas production comes from the region, according to internal estimates I've seen. While the headlines focus on price spikes, the operational risk is very real. Fields are going offline. With tanker traffic through the Strait of Hormuz at a standstill, getting product to market becomes a logistical nightmare. A source inside Shell's trading desk told me they're already rerouting some cargoes around Africa, adding weeks to delivery times and eating into margins.

To understand the company's position, think of it as an empire built on three pillars, each pulling in a different direction right now:

• Upstream (oil and gas production): Soaring prices are a direct tailwind. Every dollar increase on a barrel of Brent drops almost straight to the bottom line. This is the profit engine firing on all cylinders.
• Integrated Gas (LNG): This is the tricky one. Shell is a massive LNG player. The supply shock from Qatar is a double-edged sword. It drives up global prices, which is great for margins on gas they can sell. But it also shines a harsh light on their own legal battles; a New York judge just denied Shell's attempt to overturn an arbitration award in a nasty spat with a US LNG producer. It shows that in this high-stakes game, even the majors can take a hit.
• Downstream (refining and marketing): This is where the strain shows. Refineries face skyrocketing input costs and potential supply gaps. Plus, if this conflict drags on, demand destruction becomes a real threat. If households are spending a fortune to heat their homes and fill their cars, they have less to spend elsewhere. That's the macro headwind that eventually cools the entire economy.

The dividend and the longer view

For the average Kiwi shareholder, the immediate concern is income. Shell is in the middle of its latest buyback programme, scooping up shares for cancellation just yesterday. They're also heading towards the early March deadline for currency elections on their Q4 2025 dividend. In the short term, that cash return machine keeps churning.

But the big question is sustainability. If we're heading for a prolonged conflict, I wouldn't be surprised to see Brent flirt with US$120 a barrel. That would be an absolute windfall for producers—what some might even call obscene profits—but it would also be a wrecking ball for the global economy. Nigeria, for instance, is bleeding an estimated US$21 million daily in lost revenue simply because it can't pump enough oil to capitalise on these prices. It's a stark reminder that high prices don't help if you can't get the stuff out of the ground and to the customer.

For now, the trade is simple: own the producers, hedge against the consumer. The Shell share price is the purest play on that thesis in the market. But this is a dangerous game of geopolitical chicken. Any hint of de-escalation and crude could tumble as fast as it rose, taking the sector with it. Conversely, a drawn-out conflict risks a demand-shattering recession. For the moment, however, in a market gripped by fear, Shell remains that rare thing: a blue-chip anchor in a sea of red.