Buy Or Sell BP plc And Royal Dutch Shell Plc On Iraq Unrest?

With unrest in Iraq increasing, should investors buy or sell shares in BP plc (LON: BP) and Royal Dutch Shell Plc (LON: RDSB)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

oilBP (LSE: BP) (NYSE: BP.US) and Shell (LSE: RDSB) (NYSE: RDS-B.US) have experienced a strong first half of 2014, with shares in two of the world’s biggest oil companies climbing by 6% and 11% respectively. When compared to the FTSE 100 (which is up 1% over the same time period), this shows that even though market sentiment surrounding the two oil majors has been weak in recent years, they can still provide investors with capital gains as well as a strong yield.

Of course, a key reason for their impressive share price performance has been a higher oil price, with unrest in Iraq being a key contributor for its continued higher highs. However, does this mean that investors should buy shares in BP and Shell, or could further unrest in Iraq harm their prospects in that country?

A Presence In Iraq

Both BP and Shell have a presence in Iraq. BP signed a technical service contract with Iraq’s state-owned South Oil company in 2009, with the aim being to boost production from the vast Rumaila oil field in the south of the country. Indeed, it is hoped that the Rumaila oil field will account for 3% of total world oil production by 2016. This shows not only how big the oil field is, but also potentially how lucrative it could prove to be for BP.

In addition, Shell also has a subsidiary based in Iraq. It is the lead operator on a 20 year contract to provide technical assistance in the development of the Majnoon oil field, which is one of the biggest oil fields in the world. As with BP, there appears to be long-term potential for Shell in Iraq.

Diverse Operations

Of course, both Shell and BP have a vast amount of diversity; both companies operate across the globe and a key consideration for them is minimising their exposure to one particular region or area for fear of supply disruptions. Therefore, while Iraq presents a potentially lucrative opportunity for both companies in the long run, they appear to be sufficiently diversified to absorb potential disruption from further unrest.

A Higher Oil Price

As mentioned, a knock-on effect of unrest in Iraq is a higher oil price, as concerns abound regarding supply disruptions. Clearly, a higher oil price is positive news for Shell and BP as is does not affect costs, but does increase revenue. So, while unrest in Iraq harms the long-term potential of both companies, it appears to be more than offset by a higher oil price — which is why shares have continued to show strength in recent weeks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter owns shares in BP and Shell.

More on Investing Articles

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

£9,000 in savings? Here’s what I’d do to turn that into a £1,220 monthly passive income

With the right strategy, it’s possible to create a substantial passive income with a portfolio of FTSE 100 and FTSE…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Looking for top FTSE 100 value shares? Here’s one I’d buy without hesitation

There are still lots of FTSE 100 shares on sale despite the index's recent gains. Here's a top pharma stock…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 37% in 2024, the Barclays share price is thrashing the market!

The Barclays share price has soared almost 50% since bottoming out on 13 February. At long last, this stock is…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Apple just announced a share buyback bigger than most FTSE companies

Apple has become so dominant and cash generative that its Q2 share buyback was larger than nearly every company in…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

I love the look of this FTSE 100 giant

I'm always on the hunt for investments that look like a bargain, and I haven't been this interested in a…

Read more »

The Troat Inn on River Cherwell in Oxford. England
Investing Articles

This unloved UK stock could rise 38%, according to a City broker

This UK stock has fallen from £30 in 2019 to just £11.50 today. But analysts at Deutsche Bank think it…

Read more »

Investing Articles

Up 10% in a day! Is this the start of a rally for this FTSE 100 stock?

It’s not every day that a share on the FTSE 100 jumps 10%. This Fool is on a mission to…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Why I’d ignore Nvidia and buy this AI growth share

Nvidia stock looks massively overvalued, according to our Foolish writer Royston Wild. He'd rather invest in other AI growth shares…

Read more »