Try Fund Library Premium
Free with a 30 day trial!
The Iran conflict is now into its third month, and conditions can change in the blink of an eye! Not surprisingly, the price of oil has been bouncing wildly. It fell when the two-week ceasefire was announced, then shot back to above US$100 a barrel, only to take another big drop as investors seem convinced the worst is over.
Prices for liquified natural gas (LNG), where 20% of the enormous Al Raffan gas field in Qatar has been damaged by Iranian attacks, have risen sharply in Europe. Exports of fertilizer have been severely disrupted, as much of the urea required is produced in the Gulf. Higher fertilizer prices will feed through into higher food prices later this year, contributing to the inflationary effect of higher energy prices.
However, while higher oil and gas prices lead to higher CPI inflation, they are in fact deflationary rather than inflationary. The extra money spent on gasoline and diesel for transport and heating oil and natural gas for heating or cooling homes and offices reduces the amount available to spend on other goods. In the 1970s, higher energy costs did indeed lead to wage increases, which in turn fed through into higher prices. But fewer workers have inflation-linked contracts today. Plus unions are much weaker, with the percentage of the workforce in labour unions having more than halved in the last 50 years.
This is one of the reasons why central banks, at least in North America, where both the Bank of Canada and the U.S. Federal Reserve left short-term interest rates unchanged in March, should be much less willing to raise interest rates sharply to “fight inflation.” The most likely effect of higher interest rates on top of a rapid rise in the cost of energy would be to tip the economy into recession.
Sectors such as financials and utilities are regarded as being sensitive to interest-rate movements due to their relatively high debt loads and dividend yields, both of which are rendered less attractive if interest rates are rising. These sectors are actually up for the year, particularly since the war began.
But the best performing sector since the outbreak of hostilities is energy. The iShares Capped Energy ETF (TSX: XEG) is up 26.8% so far this year. The S&P Energy Index in the U.S. is up 22.7% year-to-date against a 4.1% gain in the S&P 500 Index. The oil-and-gas exploration and production (E&P) companies and integrated oil companies make up the great majority of these sectors’ weights. But oil service companies, which provide the hardware and software to find and produce oil and gas and the attendant liquids, make up a reasonable percentage of the sector (7%-9%) in both the U.S. and Canada.
The damage to oil and gas facilities during the Middle East hostilities has led to a downgrade of estimates for oil service companies. Industry giant SLB Ltd. says that the disruption would lead to a reduction of earnings by US$0.06-US$0.09 cents a share in the quarter ending March 31. But, longer term, repairing the damage will actually mean increased work for such providers.
This also ignores the potential for increased work from countries that were previously closed to U.S. companies, such as Venezuela. Iran itself has underinvested in its oil infrastructure for several decades, and part of any settlement might include funding of repairs and upgrades following on the model of Germany and Japan after World War II.
One other underappreciated argument for investing in oil service companies is their involvement in the buildout of data centres for the AI revolution. SLB, using its long-established expertise in construction in remote and underserviced regions, has been developing its Datacentre Solutions business, which grew 121% in 2025. It is delivering modular data centre manufacturing solutions to the Magnificent 7 hyperscalers, while its Digital business incorporating AI into processing and analysis of oil and gas data hit annualized revenues of US$1 billion at the end of 2025.
Given this background, SLB Ltd. (formerly Schlumberger) is worth considering for energy sector exposure in diversified portfolios. SLB represents a less volatile way to play the increased demand for oil and gas resources in a politically uncertain world.
SLB Limited (NYSE: SLB) is a 100-year-old oil and gas service company and is the largest oil and gas services company in the world. It is based in Texas but operates globally, with particular strengths in Latin America ($6.2 billion), Europe and Africa ($9.6 billion), and the Middle East ($12.2 billion). Its largest divisions are Production Systems ($13.3 billion revenues in 2025) and Well Construction ($11.9 billion). Reservoir Performance ($6.8 billion), Digital ($2.7 billion), and All Other ($2 billion) make up the remainder of its $35.7 billion in total revenue.
SLB has benefited from the increasing recognition that energy security is a vital element of national security, following the Russian invasion of Ukraine in 2022 and the increased tensions in the Middle East since 2023. Its stock has almost doubled in the last five years (+91% before dividends) and 52% in the last year. Despite the U.S. and Israeli conflict with Iran, the shares have risen over 61% this year and 14.16% in the last month. Its price is still less than 50% of its all-time high, reached in July 2014.
SLB reported revenues of $35.7 billion in the year ending Dec. 31, down 2% from 2024. Pretax operating income was down 10% to $6.6 billion, and EBITDA was down 7% to $9 billion. Net income was down 24% to $3.37 billion ($2.35 per share) on lower upstream revenue driven by lower oil and gas prices, geopolitical uncertainty, and an oversupplied oil market, particularly in the Middle East. There were notable declines in Mexico and sub-Saharan Africa as well.
CEO Olivier Le Peuch noted: “Fourth quarter revenue increased sequentially across all four geographical areas for the first time since the second quarter of 2024, reflecting stabilized global upstream activity...As we move into 2026, we believe the headwinds we experienced in key regions in 2025 are behind us.”
SLB raised its quarterly dividend by 3.5% at the beginning of 2026, to $0.295 from $0.285. This is equivalent to a yield of 2.4% with a payout ratio of 39%. After cutting its dividend by three quarters from $0.50 to $0.13 a share during the Covid outbreak in 2020, SLB has subsequently more than doubled it to its present level.
SLB is exposed to movements in the price of oil and gas, geopolitical uncertainties such as the present U.S.-Iran conflict, and the gradual move from fossil fuel resources towards renewable alternatives. Its position in building out AI datacentres equips it to participate in the upgrading of the electrical transmission grid. Having experienced a lengthy period of subdued oil prices between 2022 and 2025, it has proven its ability to manage adverse industry trends.
Gavin Graham is a veteran financial analyst, money manager, formerly Chief Investment Officer of BMO Financial, and a specialist in international investing, with over 35 years’ experience in global investment management. He is currently Chief Investment Officer of Calgary-based Spire Wealth Management.
Notes and Disclaimer
Content copyright © 2026 by Gavin Graham. Excerpted from an article that first appeared in The Internet Wealth Builder newsletter. Used with permission.
The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.
The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
Image: iStock.com/peshkov
Try Fund Library Premium
Free with a 30 day trial!
Fund Library
