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Dare you buy oil stocks as shipping lanes are threatened?

With recent spikes in the price of crude oil, I believe dependable giants of the oil industry are worth looking to for financial gains.

Reaping the rewards with relative stability, Royal Dutch Shell (LSE: RDSB) has remained a top income stock for decades and has continued to make a payment to investors annually since the end of World War II.

Further to this, it recently divulged plans promising cash returns of up to $125bn to investors between 2021 and 2025.

Sure-fire dividends

Shell is a solid dividend-payer, which makes it very popular for long-term holding. Lately it has been widely recommended by analysts, and its share price is below the future cash flow value, indicating that it is currently undervalued.

As global demand for oil continues and prices increase, I expect the major oil companies will progress with jobs that have been put on hold and continue generating profits.

Strait of unrest

With escalating unrest in the Strait of Hormuz, where an estimated 19 million barrels a day is transported, oil prices have already spiked.

Much of that oil comes not just from Iran, but from Saudi Arabia and its Gulf allies. At its narrowest point, the strait’s shipping route is only two miles wide. Should Iran block it, in retaliation for US sanctions and accusations, oil prices should fly.

Tensions are very high as even a temporary block of the Strait could lead to substantial increases in energy costs.

Renewable future

Royal Dutch Shell operates as an energy and petrochemical company worldwide. Climate change concerns make the oil and gas sector less favourable for many, but it is still some time until demand for oil disappears completely.

Shell is publicly committed to doubling its green energy investment and progressing to a renewable future beyond oil and gas.

Safety in numbers

Shorter-term traders may prefer the volatility of oil stocks such as FTSE 250 Premier Oil, which is an old favourite, when it comes to quick gains, but being dominated by its enormous debt pile holds it back from competing with the supermajors. Alternatively Tullow Oil, which earlier this year resumed its dividend, is another stock to watch in times of oil price volatility.

Political turmoil creates uncertainty and markets hate uncertainty, which is why it is important to realise the risks involved. Personally, I’d prefer to reap the rewards with less risk and look to long-term gains through recognised energy giants such as Royal Dutch Shell.

If you are new to buying shares in Royal Dutch Shell, please be aware that it has two classes of shares. The A-shares, RDSA, are subject to Dutch law and the B-shares, RDSB, fall under UK law.

When it comes to oil share prices there will inevitably be swings but you can be reassured that Shell should pay its generous dividends.

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Kirsteen Mackay has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.