- Energy stocks rallied overnight after the U.S.-Israeli strikes on Iran killed Supreme Leader Khamenei, sending Brent crude up 13%.
- USO and XLE rose 4%, while upstream names INDO and BATL surged 17% and 16%, respectively.
- Analyst Patrick De Haan said leadership disruption adds uncertainty but does not equal supply loss, with rising insurance costs driving oil risk premiums.
Energy stocks jumped in overnight trading late Sunday after escalating conflict in the Middle East sent oil prices soaring, even as analysts cautioned that market direction will likely hinge on supply flows rather than worst-case geopolitical scenarios.
Brent crude surged as much as 13% to above $82 a barrel at Monday’s open, marking its largest spike since 2022, after tanker traffic through the Strait of Hormuz slowed over the weekend following U.S.-Israeli strikes on Iran that killed Supreme Leader Ayatollah Ali Khamenei.
Iranian state media confirmed his death early Sunday, as shipowners paused transits through the waterway after attacks on three tankers and the declaration of a maritime warning zone. The Strait typically carries over 20% of global oil and liquefied natural gas flows.
Energy Stocks Rally
The United States Oil Fund (USO) and the Energy Select Sector SPDR ETF (XLE) each gained 4%, while smaller upstream producers also rallied as investors rotated into operators seen as more directly exposed to shifts in crude pricing.
Indonesia Energy (INDO) rose 17% overnight, and Battalion Oil (BATL) climbed 16%.
On Stocktwits, retail sentiment toward INDO and BATL was ‘extremely bullish’ amid extremely high message volume. Sentiment toward USO shifted from ‘bullish’ to ‘extremely bullish,’ while XLE moved from ‘bearish’ to ‘extremely bullish.’
The gains add to a broader trend in 2026. USO has risen 18% year-to-date, and XLE has climbed 25%, both outperforming the S&P 500’s roughly 0.5% gain and the Nasdaq’s 10% decline.
Upstream Exposure In Focus
Indonesia Energy has been advancing drilling preparations for two new wells at its Kruh Block in Sumatra, with operations expected to begin before the end of the first quarter of 2026.
Meanwhile, Battalion Oil recently expanded gas processing capacity through a new midstream agreement, allowing all of its production substantially from the Monument Draw field to flow through an alternate facility, boosting oil output by roughly 1,200 net barrels per day month-to-date in January.
Iran Leadership Shock Adds Uncertainty
Patrick De Haan, an analyst at GasBuddy, said the confirmed death of Khamenei introduces uncertainty into Iran’s decision-making structure but does not automatically imply lost supply. “A leadership vacuum could make a coordinated, broad-based response harder to execute — and that could soften oil price pressure now that the fact pattern is clearer,” he said.
While Iran has vowed retaliation, tanker-tracking data show the Strait of Hormuz remains open, with continued bi-directional traffic. However, the key development has been commercial hesitation, De Haan said.
Marine war-risk insurance premiums have jumped from roughly 0.2%-0.3% of vessel value to around 0.5% or higher, in some cases rising 40%-60% within days and adding up to $500,000 per voyage, De Haan said, adding that these logistics costs can lift oil prices even without physical supply disruption.
He compared the situation to earlier Red Sea shipping disruptions that raised freight costs despite continued flows. He said that a closed Hormuz would signal a supply shock, but a high-risk Hormuz reflects rising transaction costs and volatility.
Oil Markets Pricing Friction
Citigroup raised its short-term Brent forecast by $15 to $85 a barrel and expects prices to trade between $80 and $90 this week amid disrupted flows, according to a Bloomberg report.
Rystad Energy said oil could reach $100 if disruptions last weeks or months, while Goldman Sachs estimated that markets are already pricing an $18-per-barrel risk premium tied to tanker disruption scenarios. JPMorgan said the current slowdown appears “largely precautionary,” driven largely by insurer behavior rather than confirmed infrastructure damage.
Crude Supply Reality Still Matters
De Haan noted that Iran’s exports are largely tied to China rather than directly influencing U.S. gasoline markets. OPEC+ over the weekend announced a 206,000-barrels-per-day production increase beginning in April. “Producers are clearly thinking in terms of stabilizing price expectations, not stoking fear-driven spikes,” he said.
Even so, the additional supply would still need to transit Hormuz. De Haan also said Venezuela’s production, below 1 million barrels per day, cannot offset short-term Middle East risk.
De Haan expects U.S. gasoline prices to move back above $3 per gallon and potentially toward $3.10 to $3.25 in the coming weeks, driven by risk premiums and seasonal factors. However, he warned that “the situation remains very fluid, and the risk calculations are changing by the hour.”
How Did Stocktwits Users React?
One user expects INDO to see a “big day” at market open and expects the stock to “jump 10% per 1% of oil increase.”
Another user said, “Feels like the market is getting a little too optimistic at this point.”
While INDO stock has more than doubled so far this year, BATL has skyrocketed nearly 400% over the same period.
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