Ormuz: when geopolitics reshuffles the map of energy assets

Energy: From the shock of the market to the re-hierarchization of projects and capital

By Marin Bourgeois, Senior Analyst, IVO Capital Partners

Summary – Ormuz is not just a price shock: it is a stress test of supply security. When geopolitical risk materializes, decision-makers rethink in terms of robustness, which can re-hierarchize projects and redistribute capex. The original risk is likely to be anchored in investment decisions in the long term. – Liquefied natural gas: The crisis does not automatically trigger a wave of greenfield LNG projects; it re-hierarchizes projects. Winners are executable developments, linked to existing infrastructure and located in perceived neutral or diversifying geographies, while long and complex projects are penalized by execution risk. – Oil: The combination of the Ormuz shock (emphasizing supply security) and shareholder pressure for reserve renewal could reopen an exploration cycle outside the Middle East to secure a project portfolio beyond 2030 – especially in the Atlantic basin, seen as a natural substitute for the Middle East.

Introduction The current crisis extends beyond a simple geopolitical episode, combining logistic disruptions, military risks, and energy tension – reminiscent of past crises from the 1970s oil shocks to the 2022 gas crisis. Not just a flow shock, this crisis is also an asset shock with damaged physical infrastructure potentially disrupting energy systems for years.

The LNG: where the crisis becomes structural: it’s no longer just a flow shock but an asset shock The LNG segment is the most structuring impact area, as the crisis goes beyond flow shocks to asset shocks – significant damage at Ras Laffan representing about 12.8 million tons per year of liquefaction trains. Geopolitical risks can reshape investment decisions, acting as a stress test for energy security.

Oil: distinguishing short-term redistribution from long-term reconfiguration Ormuz’s impact on oil is massive but different from LNG. The logistical shock can be partially cushioned by flexibility mechanisms like rerouting capacities and strategic reserves. In the long term, the re-pricing of supply security may favor hubs offering cost competitiveness and logistical resilience – the Atlantic basin emerges as a natural candidate.

And renewables in all this? In addition to oil and gas, the crisis can also favor renewables due to their low variable production costs relative to gas and coal in balancing electricity price trends, potentially supporting investments in the long term.

IVO EM Corporate Debt Fund Positioning The fund aims to capture these dynamics in emerging markets and adjust to market mutations. Exposures include LNG infrastructure outside the Middle East, such as Peru LNG, and EM producers with gas assets. The fund also invests in FLNG infrastructure suppliers and producers for gas monetization options in Africa.

In conclusion, the current energy crisis is reshaping investment decisions, favoring executable projects and diversifying geographies, while highlighting the importance of supply security and the need for rapid decisions and financing in emerging markets like West Africa and Latin America.