BP (LSE: BP) and Shell (LSE: SHEL) shares are in demand right now. As the oil price soars due to events in Iran, they look like obvious beneficiaries. But investing is never quite that simple. Is there a hidden risk we’re missing?
As a rule, a rising oil price is good for energy stocks. At the start of the crisis, Brent crude traded at just over $60. Today, it’s at $114. If the war drags on, analysts say it could top $120. So how have BP and Shell shares responded?
Since the war began on 28 February, the BP share price is up around 20%. Shell is more sluggish, up a modest 7%. Given that we’re supposedly facing the biggest energy supply shock in history, I expected better. Here’s what I think is going on.
Why aren’t these FTSE 100 stocks doing even better?
First, the higher oil price hasn’t shown up in profits yet. BP reported yesterday, but its Q1 results ran to 31 March, so they only caught the early stage of the spike. Second, investors have broadly accepted Donald Trump’s assurances that the war is under control. Nobody wants to go big on BP and Shell, only for the Strait of Hormuz to reopen next day. Their shares will plunge as a result.
There’s a longer-term worry. The oil shock might ultimately rebound on Big Oil. It could trigger more windfall taxes, and persuade import-dependent countries to accelerate their switch to renewables. Nobody is taking anything for granted. Yet one thing is clear. BP and Shell have been terrific investments lately.
Over the last 12 months, their shares are up 60% and 34%, respectively. If an investor had split a £20,000 Stocks and Shares ISA equally between them one year ago, their BP stake would be worth £16,000 and Shell £13,400. But that’s not all they’d have.
BP has a trailing yield of 4.25%, with Shell’s at 3.25%. That lifts their total returns to roughly £16,425 and £13,725, respectively. In total, the two energy giants have turned a £20,000 ISA investment into £30,150, in just one year. That shows the supreme wealth-building power of shares. But can it continue?
They’re risky, but are they rewarding?
Given today’s high oil price, there’s a good chance of more rewards. Yesterday (28 April), BP said underlying replacement cost profit more than doubled from $1.5bn to $3.2bn in Q1, boosted by its busy trading division. Yet there are still challenges. Net debt rose by $3.1bn to $25.3bn, the board said, “primarily driven by lower operating cash flow”. Shell’s debt is higher still, climbing $6.9bn in 2025 to $45.7bn. However, it’s the bigger company, with a market cap of £184bn versus £83bn.
BP has been the messier story, lurching into renewables then back out again, with boardroom issues along the way. Its shares trailed Shell for years but are now playing catch-up, which helps explain recent superior gains.
As ever, there are risks. The Iran conflict is unguessable. A global recession could hit oil demand. The UAE is pulling out of OPEC, which could boost supply and squeeze prices in the longer term. And there’s climate change. BP and Shell remain high-risk, high-reward stock opportunities. I think both are well worth a closer look, for investors who have a taste for excitement – and dividend income.
