Oil and gas producers are the obvious winners from Iran’s claimed closure of the primary shipping route down the Persian Gulf and around the tight Strait of Hormuz.

But other forms of energy will also benefit as the world scrambles to remain mobile and meet the ever increasing demand for electricity which means coal will get a boost, as will uranium and lithium.

The reality of losing oil and gas supplies from the Middle East, especially if the war drags on, is that demand will eventually swamp supply and the price of all forms of energy will continue rising.

Australia’s big two of oil and gas Woodside and Santos are up 6% since the shooting started which to anyone who lived through the oil embargoes and price shocks of the 1970s, when a similar toxic cocktail of politics and religion developed, is ludicrously small.

A shared problem at this stage of the developing energy shock for Woodside and Santos is that they are gas exporters, selling under long-term contracts which are yet to reflect an 18% rise in traded prices for oil and gas over the past week.

That is almost certain to change because the fighting is far from over and all that’s required to block the Persian Gulf is a successful Iranian hit on a single oil (or gas) tanker or multiple hits on the vast oil and gas producing and refining industries in the region.

A guide to what’s coming could be seen on the Australian stock market this week with most major indices (all ordinaries, mining, and gold) down 2.5% each, while the energy index rose by 7% as smart investors took early positions in the energy sector.

Unloved coal stocks led the way up. Whitehaven rose by 7.5%. Stanmore gained 11% and even New Hope, a coal miner once called by its largest shareholder No Hope, managed a 6% rise.

Most investment banks, and certainly most daily media coverage, has ignored what’s happening in energy markets, perhaps because the “fog of war” makes it had to see ahead, but also because most of the analysts and journalists are too young to have ever seen a situation like this.

Older observers, including me, remember how it could play out because we go back to October 1973 when the first oil shock hit after the outbreak of the Yom Kippur war, triggering a 150% oil price rise from US$4 a barrel (yes, US$4/bbl) to US$10/bbl, rising over the next seven years to US$40/bbl by 1980, up 900% from the start of the crisis.

Siding with the theory that financial markets are yet to fully factor in the effects of losing Middle East oil and gas is David Solomon, chairman of Goldman Sachs, who said mid-week that he was surprised by the muted market reaction so far.

But as the evidence builds and it becomes easier to see a harsher reaction is likely, Solomon said.

Helima Croft, a highly regarded energy analyst with RBC Capital Markets, said Middle East oil and gas had essentially become stranded assets leading to a “cascade of outages of critical supplies”.

One example of the cascade effect is what looks to be the start of another upward move in the copper price as shipments of sulphur and sulphuric acid from Middle East oil refineries is halted, hampering the processing of copper ore, possibly leading to a copper shortage.

Morgans, a Queensland based stockbroking firm with a deep history of energy research, is buy rated on most oil and gas companies with Woodside possibly heading up to $33.55 from its pre-war $27.50 and current $30.02. Santos could rise from pre-war $6.74 to $7.50.

Those possible moves will be influenced by one of three scenarios explored by Morgans in a note to clients earlier this week with the first being a short-lived disruption of one-to-two weeks, in which case investors should sell into market strength.

The second scenario of a war lasting weeks to months is to go overweight. Woodside, Karoon, Santos and Beach are the recommended stocks as oil rises to between US$90/bbl and US$100/bbl.

The third, and what seems most likely as the war is embedded in deep Iranian hatred of the western world, is oil rising to US$120/bbl and perhaps higher which essentially means buy any energy producer.

There is, however, a caveat on the oil boom scenario because if oil rises to US$120bbl and stays there a global recession will deaden demand for everything else with a re-run of the 1970s delivering a decade of no, or low, growth.

Gold too is also being effected. Dubai, the world’s leading gold trading hub, is effectively closed because of Iranian missile attacks and while the gold price has bounced all week, the latest move is up a little to US$5182 an ounce.

Local gold stocks have been generally weaker with Genesis, Ausgold and PC Gold three exceptions.

Genesis rose by a 3c to $7.34. Ausgold added 6c to $1.17 after announcing an expanded drilling campaign at its Katanning project in the south of WA and PC Gold put on 3c to 96c thanks to growing interest in its exploration program at Pine Creek in the Northern Territory.

Many Peaks Minerals ran out of steam after a strong upward move to $1.08 earlier in the week, slipping back to $1.01, down 2c for the week, but with CG Capital Markets tipping a future price of $1.85 as exploration uncovers more gold at its Ferke project in Core d’Ivoire.

Rare earths and other critical metals performed strongly over the week as the China v Japan war of words showed no sign of cooling.

Lynas, as always, led the sector higher with a rise of $1.42 to $19.16 thanks to securing a 10-year life extension from the Malaysian Government for its processing plant in that country. Citi reckons Lynas is due for a fall, tipping a future price of just $9.50.

Other rare earth a critical metal moves included:

  • Lindian, up 12c to 74c after announcing plans to acquire a controlling stake in a rare earth processing plant in Kazakhstan which could significantly de-risk the development of its Kangankunde project in Malawi.
  • EQ Resources, up 9c to 34c thanks to a rush by investors to acquire an interest in stocks exposed to tungsten. Morgans reckons EQ has risen too far, too fast, with a trim recommendation and price forecast of 23c.
  • OD6 Metals, up 4.5c to 10c after announcing plans to buy a fluorspar asset in the U.S, and
  • WA1 Resources, down $1.61 to $16.09 despite reporting fresh assays from drilling at its Luni niobium project in WA.

Iron ore stocks started to fade under the weight of a slowing Chinese economy and rising supply from new mines in Africa.

Fortescue fell by $1.68 to $19.27, burdened by the payment of a dividend on its books at the start of the week. Champion Iron lost 49c to $4.95 and Fenix was 3c weaker at 38c.

Other news and market moves in a difficult week for investors included:

  • Deep Yellow, down 21c at $2.44 thanks to speculation of a major capital raising to expand uranium production.
  • Solstice Minerals slipping 1c lower to $1 despite reporting new assays from drilling at its Nanadie copper and gold project in WA, including a hit of 55 metres at 1.07% copper from a depth of 201m. Canaccord has a price target on the stock of $1.85.
  • Brightstar led the week’s capital raising, confirming a successful US$120 million bond issue to help fund its Sandstone project in WA.

Other capital raisings included: Investigator Silver with a $55 million placement. Horizon Gold, $30 million. Australian Vanadium, $7.5 million, and Ardea Resources $5 million with another $2 million expected from a share purchase plan.