Why Shell's share price is defying gravity as Middle East tensions threaten global oil supply

If you're keeping an eye on the markets this morning, you've probably noticed one stock standing out from the rest: Shell's share price. This isn't just a minor fluctuation. Behind the scenes, chatter from trading floors and my own contacts in the Gulf suggest we're looking at a genuine shift in the landscape. The latest escalation between Iran and the US-Israeli axis has crossed a line that even seasoned oil traders never anticipated.

Let me paint you a clear picture. Over the weekend, a senior adviser to the Iranian Revolutionary Guard appeared on state television and essentially declared war on the Strait of Hormuz. His exact words, relayed by a source who watched the broadcast, were that Iran would "set fire to anyone trying to pass through." That's not just rhetoric; it's a threat to choke the world's most critical oil artery. Roughly one in every five barrels of global crude oil passes through that narrow channel. Right now, shipping traffic has slowed to a crawl, and some operators have simply stopped scheduling transits.

Brent crude reacted immediately, breaking through US$80 a barrel and extending gains for a third straight session—a streak we haven't seen since the early days of the Ukraine war. But crude oil is only part of the story. The real action is 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 bills and business competitiveness.

The persistent inflation headache

Now, let's address the elephant in the room: central banks. Just last week, a March rate cut in the US was almost a done deal—money markets were pricing in an 80% chance. This morning? It's barely above 50%. I had a quiet chat with a former economist yesterday, and his view was stark: if oil and gas prices stay elevated, global CPI could be 0.7 percentage points higher by year-end than anyone was forecasting a month ago. Central banks can talk about "looking through" energy shocks all they want, but when businesses see their fuel bills double, they pass it on. When consumers see those prices at the pump, they demand higher wages. That second-round effect is the policy nightmare that could keep rates higher for longer, just as the economy was starting to find its footing.

So where does that leave Shell's share price? On Monday, while the STI dipped, 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 a contributor to inflationary pressure and a rare safe haven 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 dispute 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 power 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 Singapore investor, the immediate concern might be 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 outsized 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. Shell's share price is one of the clearest plays 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.