In 1911, the British navy, then the maritime superpower, switched from coal to oil. That decision doomed the Middle East to what we see today.
The US inherited Britain's obsession with the region. A 1945 State Department memo called it “a stupendous source of strategic power”. Washington's view hasn't changed much since.
Washington’s interest – like the British Empire, back in its day in the sun – boils down to two things: control over oil (control, as distinct from access or profits); and making sure it trades in US dollars. That petrodollar system is one of the deepest foundations of American power.
What's happening to oil prices
Iran's influence over oil comes from the Strait of Hormuz, the narrow waterway through which about 20% of the world's oil flows.
Right now, that flow has almost stopped.
Goldman Sachs estimates oil shipments through the Strait are down around 90% from normal: a hit of roughly 17 million barrels per day. To put that in perspective: Goldman describes it as 17x larger than the supply shock caused by Russia's oil production cuts in April 2022. It is a big number.
Can't ships just go another way? Not really. The two main bypass options - a Saudi pipeline to the Red Sea and a UAE pipeline to the Gulf of Oman - could theoretically redirect up to 3.6 million barrels per day between them. In practice, only 0.9 million barrels has actually been redirected, and UAE ports have themselves come under attack, making even that unreliable.
Goldman now thinks oil prices will stay above US$100 per barrel this week if the situation doesn't improve. And could exceed the peaks 2008 if flows stay depressed through March.
What's happening to gas prices
The Strait of Hormuz doesn't just carry oil. About one fifth of the world's LNG passes through it too, most of it from Qatar.
Goldman estimates that if flows were cut off for just one month, European and Asian gas prices could jump around 130% from current levels, approaching a threshold that previously caused factories across Europe to shut down or drastically reduce production during the 2022 energy crisis.
Heading into next winter, a prolonged disruption would put serious pressure on European gas storage.
What it means for Santos and Woodside
Both companies sell most of their oil and LNG under long-term contracts tied to the oil price, so both benefit when Brent rises. But the degree and nature of this benefit is meaningfully different.
Santos is the simpler story. Almost everything it sells is linked to oil prices. It has no hedges in place: its latest annual report confirms zero oil price hedging contracts as of the end of 2025. As such, Santos has the highest oil price sensitivity of any upstream energy company in Asia-Pacific.
Santos itself has disclosed that every US$10 per barrel move in Brent translates to roughly US$400 million in additional free cash flow. Today's US$20 oil price jump implies a US$800 million boost to free cash flow, which explains why Santos shares are up over 3% while the broader market is down nearly 4%.
Woodside is more complex. It also sells most of its LNG on oil-linked contracts. But 30% of its LNG is priced against gas market benchmarks like the Asian JKM price. This means it has somewhat less leverage to the oil price than Santos. But it has meaningful additional upside if gas prices spike, which the market thinks is increasingly likely.
Goldman estimates Woodside's earnings would rise around 11% for every US$5 per MMBtu increase in the Asian gas price. This is more than Santos's 7% on the same measure. Woodside also runs an active LNG trading operation, giving it the ability to redirect cargoes and capture spot price premiums that Santos currently can't.
If this crisis stays primarily an oil shock, Santos is the more direct bet. It has maximum leverage, no hedges, and the highest sensitivity in the region.
On the other hand, if it escalates into a prolonged energy crisis that drives gas prices sharply higher, Woodside's trading is an advantage.
Santos is the oil shock trade. Woodside is the insurance if things get worse.
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