PHOTO: REUTERS/FILE

REUTERS, Houston

Oil companies will have to look further afield for new fossil fuel resources now that the Iran war has dented the investment allure of the energy-rich Middle East. Higher oil prices will give them that chance.

Major international oil companies, including Exxon Mobil, Chevron, TotalEnergies, Shell and BP, have long been drawn to the Middle ​East by its vast resources, stable fiscal terms and, until recently, relative political stability. The region accounts for roughly a fifth of global oil and liquefied natural gas (LNG) production.

That reputation, built painstakingly ‌over decades even as wars raged in Iraq and Yemen, has now been shattered by the US-Israeli war with Iran.

Now in its fifth week, the conflict has put energy infrastructure squarely in the crosshairs. Dozens of facilities across the Gulf have been damaged, including Qatar’s giant LNG hub and several major oil refineries.

The closure of the Strait of Hormuz - through which roughly 20 percent of the world’s oil and gas normally flows - has forced producers to shut oilfields, costing the region an estimated $1 billion a day in lost export revenues, according ​to Reuters calculations based on pre‑war prices.

The longer‑term costs will be far higher. Restarting operations and repairing damaged facilities will likely run into the tens of billions of dollars - if not far ​more. QatarEnergy said an Iranian missile strike on February 18 could cost it about $20 billion a year in lost revenue and take up to five years to repair.

But no amount of money may be able to repair the region’s reputational damage – at least not in the short term – and that is likely to rapidly reshape Western energy majors’ upstream strategies.

The ​Middle East will clearly remain a major source of oil and gas for decades. It holds about half of the world’s proven oil reserves and 40 percent of gas reserves. Western companies are thus unlikely to abandon ​it altogether.

It currently makes up a substantial portion of many majors’ portfolios, including 41 percent of Exxon’s reserves, 42 percent of TotalEnergies’ and a quarter of Shell’s, according to consultancy Welligence. The region attracted around $130 billion in oil and gas investment in 2025, roughly 15 percent of the global total, according to the International Energy Agency.

But unless the Iran war ends with a new, non-belligerent government sitting in Tehran - an outcome that currently appears remote - the conflict will leave deep scars. Uncertainty over the safety of transit ​through Hormuz and the higher risk of conflagration is apt to sharply boost the cost of deploying staff, equipment, insurance and capital in the Middle East, making the region a lot less attractive for exploration.

This ​rising risk premium in the world’s largest energy-producing region is already being reflected in long-term oil prices.

Since the eve of the conflict, the average Brent crude price expected in 2030 has jumped about 10 percent to roughly $72 a barrel. Once the ‌full extent of the damage from the war is known, that could rise even further.