A Supply Path to Energy Security

Recent tensions in the Middle East reinforce how energy security is paramount to both governments and investors. Roughly 20% of global oil and liquified natural gas (LNG) supply passes through the Strait of Hormuz, making it one of the world’s most important energy chokepoints, most notably for supply to Asia.¹ Without any large-scale pipeline alternatives, short-lived disruptions—whether from physical damage, shipping delays or insurance withdrawals—can quickly tighten markets and push prices higher.

LNG is particularly sensitive to these bottlenecks because a significant share of global supply originates in the Gulf region.² LNG plays a growing role in power generation, industrial activity and heating. When transit through the strait is constrained, it can quickly impact global gas markets, tightening availability and increasing volatility for import-dependent economies.

Energy exposure can potentially serve as both opportunity and ballast. When geopolitical tensions rise, oil and LNG prices often reprice quickly, supporting the earnings and cash flow of well-positioned producers. Energy revenues tend to move with inflation, helping offset pressure in more rate-sensitive sectors.³ We believe real assets companies—particularly those with proven reserves, long-term contracts and physical infrastructure—can provide resilience when financial assets are under stress during periods of macro uncertainty.

Within the energy sector, we focus on supply dynamics, not demand drivers, because reliable supplies of energy are critical to the proper functioning of economies. Increasing energy supply is capital intensive, politically influenced and spans multi-year periods. As a result, effective spare capacity is limited relative to total global demand, and infrastructure bottlenecks—pipelines, export terminals and shipping lanes—can quickly become binding constraints.

Accordingly, we favor select energy companies and service providers that control scarce, long-lived assets in stable jurisdictions, operate with low costs and maintain strong balance sheets. These characteristics position them to potentially benefit when prices strengthen, while providing potential durability if conditions normalize. In our view, that combination—the ability to withstand disruption and potentially benefit from long-term volatility—makes energy a resilient component of a diversified portfolio.