Oil & Gas

Investing in oil companies as a “sure bet” when there is a temporary spike in crude is usually a challenging idea.

Doing it during a war, when the destruction of demand can be much greater than the first jump in the commodity price, is even riskier. Recent history in 2008, 2018, 2022, and 2025 proves this.

Investing in oil companies must be based on fundamental analysis that is independent from the spot price of crude and natural gas and focused on value creation at mid‑cycle prices.

The key is not to jump on a short‑term wave that the oil companies themselves barely capture in their profits.

The SXEP index tracks European oil & gas companies that are highly sensitive to different businesses, expectations, investment cycles, and regulations, and in many cases, they are fundamentally refiners, not pure producers that capture the “spot” price of crude.

Price spikes usually coincide with late‑cycle phases or supply shocks, when the risk of a correction in both the sector and the overall market is high.

In those periods, broad indices like the S&P 500, Nasdaq, or Stoxx 600 tend to offer better risk-adjusted returns in the medium term than a long-term entry into oil companies, which in practice is often implemented once the initial shock has already moved the stocks.

Why the oil price misleads investors in oil stocks

The typical argument is: “Oil is going up, so I’ll buy oil stocks.” That intuitive leap confuses spot prices with revenues and cash flow and ignores three important brakes:

• The market discounts the cycle: by the time the retail investor sees oil at a peak on front pages, the strongest stretch of sector re-rating has usually already happened.
• Costs and capex: Higher oil prices also bring regulatory pressure, higher taxes, tougher environmental requirements, and large investment plans, all of which reduce future free cash flow.
• High oil prices hurt companies with a large share of refining or chemicals in their business mix.

If, on top of that, the market perceives the oil jump as temporary, the profit increase is capitalised over a very short time in valuations.

The stock goes up until they report earnings, is a phrase often repeated by analysts that captures the difference between commodity price and profit correlation.

Confusing momentum with opportunity

Oil companies, especially European ones, are highly procyclical and complex and should be treated as such. Basing an investment decision on an external event can easily lead to confusing momentum with opportunity.

That is why investment must be analysed separately from the geopolitical backdrop, while remembering that most of these firms, as concession‑based businesses, can suffer expropriations and attacks in periods of political uncertainty.

Some European energy firms are notorious for investing huge amounts in boom times and divesting at low prices

An oil company is an asset manager that seeks to generate returns at low prices and whose sensitivity to short‑term price volatility is quite low. Its appeal should lie in its low cash‑flow volatility despite limited margins, not in the opposite.

Value creation or destruction from acquisitions is crucial in companies that are essentially managers of concession assets.

Some European energy firms are notorious for investing huge amounts in boom times and divesting at low prices, with honourable exceptions.

That is why the sector trades at a lower PE and EV/EBITDA multiple than many others. Using oil stocks as an automatic hedge against a few months of higher oil prices is conceptually simple but empirically poor.

Geopolitics, inflation, and oil

This gets even more complex with geopolitical events and wars. Between 2022 and 2025, there were seven major conflicts in the Middle East and Africa with no impact on the oil price.

In real terms, the oil price during the Iran War is below mid‑cycle inflation-adjusted highs. Inflation matters, both for the nominal price of the commodity and for exploration, production, and development costs.

Remember that in 2022 the oil and gas price spike deflated in just a couple of months, and four years later commodities have not revisited that peak in either real or nominal terms.

The US has gone from amplifying geopolitical risk in commodities to becoming a global shock absorber

Why does geopolitical risk affect less and for shorter periods? Ignoring the fact that, since 2007, the United States has gone from being the largest net importer of oil and gas to being independent in gas and the largest oil producer in the world leads to an easy but misguided comparison with past crises.

The US has gone from amplifying geopolitical risk in commodities to becoming a global shock absorber. Added to this is an OPEC that does not want to hurt its customers but rather present itself as the most reliable, competitive, and flexible supplier.

Lessons from 2008 and 2018

In 2008, crude shot above 140 dollars before collapsing with the financial crisis. That peak looked like an ideal scenario for those who thought oil companies were a great haven, but the macro context was lethal for the entire market, including energy.

The SXEP index was dragged down by the global equity crash, with very significant falls when the credit crisis blew up. Oil plunged to around 55 dollars in a short period.

2018 was another example of an oil rally in a context of geopolitical and supply tensions, followed by a market correction.

For the investor who patiently waits through boom times to buy on a geopolitical shock or oil spike, it often means missing the opportunity in the rest of the market

The SXEP index showed volatile behaviour, with an initial rebound linked to oil, then a correction when the market started discounting the global slowdown.

For the investor who buys oil stocks when oil has already risen and the media talk about an “energy rally,” the result is often even worse: little portfolio protection and a lot of stock‑specific risk.

For the investor who patiently waits through boom times to buy on a geopolitical shock or oil spike, it often means missing the opportunity in the rest of the market.

That is why professional investors who do not panic over short‑term headlines choose very selectively those oil companies that combine prudent project portfolio management, disciplined investment, high return on capital employed, and cash‑flow growth at the low and midpoints of the cycle, and they do so within a diversified portfolio, not because of the latest front page of a news outlet.

Lessons from 2022–2025

2022 looked like the clearest, most recent case supporting the story – at first sight: war in Ukraine, oil surging, gas exploding, and energy being the star sector in the short term. The error is extrapolating that one‑off year.

If you only look at 2022, the “oil stocks as protection” thesis seems to work. If you look at 2022–2025 as a block, the investor who aggressively rotated into oil missed a large part of the structural rebound in broad equity indices, especially technology and quality, and ended up with returns below inflation.

In 2023, 2024, and 2025, even with wars in Ukraine and Gaza, the picture is worse.

Investing in the SXEP index – with some honourable individual exceptions – is the empirical definition of “empty calories”

The empirical evidence for the SXEP index (European Oil & Gas) over 2008–2025 is a cumulative return of +128% in dollars, compared with +140% for the Stoxx 600, +530% for the S&P 500 and +1,200% for the Nasdaq 100.

In euro terms, the SXEP index rose much less than oil, the XLE, the S&P 500 or the Nasdaq.

In other words, the “easy trade” of buying oil stocks after the shock cools down while the global benchmarks regain traction and more than compensate for the drawdown in the shock year.

The data, in both euros and dollars, show that investing in the SXEP index – with some honourable individual exceptions – is the empirical definition of “empty calories”: an expensive and volatile investment that does not deliver long‑term returns or protection in financial crises.

More than just the commodity price

Oil companies, like gold miners, are much more than the commodity price. Most of these firms have low sensitivity to the oil price – something they themselves constantly repeat in their conference calls during periods of low oil prices.

In addition, they tend to do large acquisitions at elevated valuations during high cash‑flow periods, which is why the market assigns them a significant conglomerate discount.

We should not forget that most oil companies are concessionaires with very diversified businesses, where return on capital barely exceeds the cost of capital, again with some exceptions.

Individual high-quality names have consistently outperformed the sector indices

For investors attracted by oil, exploration and production (E&P) companies are more appealing because they are less politically constrained, but they are also much more volatile.

The XLE index, which tracks major US oil companies, has done better than the European SXEP index in the period I mentioned (+171%), albeit nowhere near broad indices like the Nasdaq or the S&P 500.

The oil services index, which in theory should have a high correlation with crude, has also underperformed.

The importance of independent analysis and a good understanding of fundamentals become even clearer: Individual high-quality names have consistently outperformed the sector indices.

Looking beyond the noise

Over a multi‑year horizon, for long‑term investors, a diversified portfolio in sectors with higher returns on capital and lower capital needs beats a tactical bet taken late in the oil cycle.

The investor who buys oil companies at the peak of geopolitical noise is buying volatility, regulatory risk, and confiscation risk, not extraordinary profits, as S&P Global explains.

If there is a sector that demands detailed analysis and looking beyond the surface, it is the energy sector.

Being selective and prudent, looking beyond the noise and not confusing headlines with trends is essential when investing in oil companies

A temporary spike in oil prices does not justify an aggressive rotation of the portfolio into oil stocks. A war is a very bad reason to buy companies whose profitability is forged in 30‑year investment plans.

In fact, the impact of war on commodities depends largely on expectations about marginal demand and, as we have seen in conflicts since 2022, tends to be very short-lived.

Being selective and prudent, looking beyond the noise and not confusing headlines with trends is essential when investing in oil companies.

Brent’s 40% swing

Brent crude has rebounded above 100 dollars per barrel in March 2026 after trading near 70 dollars a month earlier, a swing of more than 40% in a few weeks.

Despite this spike, global oil and gas equities have not matched the move: the S&P 500 Energy sector’s 12‑month returns remain modest, and in prior conflicts, the average 12‑month performance after a war shock has been close to flat once the initial move fades.

Fundamentals matter. Some high-quality oil companies have consistently outperformed their peers due to prudent portfolio management, a focus on returns at mid-cycle prices and cost control.

Meanwhile, most oil equities discount the cycle early, suffer from rising costs and windfall‑tax risk, and do not mirror the latest headline on Brent.

Defence stocks: why have some sold off in the middle of war?

Many investors also assume that war equals automatic gains in defence. However, recent months show a different picture:

The S&P 500 Aerospace & Defence industry index is up strongly over the last 12 months (around +30% to +35%), but in the most recent 1–3-month period it has registered short‑term pullbacks of around −5% to −7% despite ongoing conflict and rising defence budgets.

This shows that the index mostly discounted the positive news on the military budget early.

Historical analysis across major conflicts (Kuwait 1990, 9/11, Ukraine 2022, and the 2024–2025 Middle East escalations) shows that defence stocks often rally into and shortly after the event but may correct sharply in the first weeks as investors sell the news.

Quantitative studies of war periods show that the first month after a shock is often the weakest for defence

Several factors explain why defence stocks can fall even as war headlines dominate the news:

From 2022 to 2025, core US defence names like Lockheed Martin, Northrop Grumman, and RTX delivered cumulative gains of roughly 60–85%, significantly outperforming the S&P 500.

When a new escalation hits, such as the Iran war, many investors use the spike in uncertainty to lock in historical profits, generating short‑term drawdowns even though the long‑term backlog is solid.

Quantitative studies of war periods show that the first month after a shock is often the weakest for defence, with negative or flat returns, while 6‑ and 12‑month windows tend to be positive on average, according to Investor Observer.

When headlines drive crowded trades

When inflation spikes due to war and oil price impacts, investors become nervous about government budgets, allocation to defence, and the sustainability of current backlogs if central banks decide to hike rates.

Defence stocks tend to suffer when investors anticipate higher interest rates and express concerns about weakening sovereign solvency

Furthermore, sometimes governments announce large defence spending programmes that do not always become real and drive new orders and earnings.

Delays often happen, governments tend to change the structure of their contracts, and political and regulatory risk may affect what seems to be an ideal scenario, leading to uncertainty in revenue projections and investment returns for defence companies.

Some European defence names, in particular, trade with a discount due to governance concerns, state ownership, or fears of windfall‑style government interventions like those seen in energy.

Both energy and defence show a similar pattern: the intuitive “war trade” is often late, crowded, and driven by headlines rather than cycle analysis.

These are two sectors in which independent and detailed analysis, with a deep understanding of fundamentals, becomes critical.

Investors that focus on fundamentals and not on news headlines usually outperform the energy and defence sector indices.

The latest readings for Arab Light and Dubai crude show that prices are falling while the Brent forward curve sits in deep backwardation.

These signs of normalisation and relief suggest that OPEC+ is trying to act as the central bank of oil in the middle of the war in Iran, elevated geopolitical risk and a fragile global recovery.

Furthermore, the United States is now the largest oil producer in the world, and, as such, US production capacity acts as a cushion against geopolitical shocks.

Aramco has been cutting the official selling price (OSP) of Arab Light into Asia for several consecutive months, taking it from a premium over Oman/Dubai to a discount for March 2026 cargoes.

According to Reuters, expectations point to a 50–85 cent per barrel cut for March, implying Arab Light at around 20–55 cents below the Oman/Dubai benchmark, the lowest differential in more than five years.

In 2025, the same grade was priced at close to 4 dollars per barrel above Oman/Dubai, as Asian demand was strong and Russian supplies were limited, according to Reuters and Oil Price.

Dubai crude, the primary medium sour benchmark for Asia, has also seen a decline from its recent peaks.

The Brent forward curve, currently in deep backwardation, indicates a tight market at present, even as it anticipates a well-supplied market in the months ahead.

Managing oil prices

Spot crude is expensive because of a higher geopolitical risk premium: inventories are depleting fast, immediate supply is highly valued and buyers are willing to pay a premium to secure deliveries now rather than in six or twelve months.

However, at the very same time, key Middle East benchmarks such as Arab Light and Dubai are easing, which indicates that markets expect a rapid normalisation of supply.

This is where OPEC+ steps in as the closest thing we have to a monetary authority in oil and where the United States becomes the global cushion for geopolitical risk.

OPEC+ tries to manage the price of crude by providing ample supply and anchoring expectations of additional barrels in the market

In 2008, the United States produced around 5 million barrels per day, and geopolitical risks tended to amplify because of its inelastic demand for imported oil.

That situation has completely reversed as domestic production has soared to almost 14 million barrels per day, and now the US acts as a cushion that limits geopolitical risk instead of amplifying it.

At the same time, OPEC+ wants to show the world that it is the most competitive, reliable and flexible supplier. In the same way that central banks manage the price of money by controlling liquidity and shaping inflation expectations, OPEC+ tries to manage the price of crude by providing ample supply and anchoring expectations of additional barrels in the market.

Managing supply amid geopolitical shocks

The Iran war and the broader conflict risk in the region have raised the perceived probability of supply shocks. Tankers, pipelines and export terminals have become part of the geopolitical risk premium embedded in oil prices.

However, instead of a long-dated super spike driven by panic, we see a curve that is steeply in backwardation but not pricing a crisis.

The market believes that OPEC+ still holds enough spare capacity and the willingness to deploy it if needed and sees the immediate response of US producers as a source of relief, as we saw in 2022 and 2018

OPEC’s credibility is built every month in the physical market. When buyers see that Aramco and other suppliers are facilitating supply to Asia at a reasonable price, it is not only a reaction to softer demand and competition from discounted Russian barrels or Iranian threats.

It also signals that Saudi Arabia prioritises volume stability and reliability over simply seeking higher prices. By keeping exports flowing and adjusting differentials rather than shutting the tap abruptly, Aramco reinforces the idea that OPEC+ is the guarantee of supply in a world of political disruption.

Deep backwardation also implies that inventories are not ample. OECD stocks sit close to or below their five-year averages, and commercial and strategic reserves have been drawn down recently.

Backwardation penalises holding inventories: each month that passes, the value of stock in the tank falls relative to the spot price.

The market is effectively discounting a system that will continue to flow without disruption, which is exactly the role OPEC+ is trying to play. It provides insurance, substituting barrels in the ground for barrels in storage.

Asia is the marginal buyer of Middle East crude, the key driver of incremental demand and the main arena where OPEC+’s “central bank of oil” role is most important.

All actions so far suggest that OPEC+ and US producers are prioritising reliable and constant supply instead of maximising the short-term benefits of rising prices and a tight market.

Many commentators state that the United States’ intervention in Venezuela is all about oil. However, they seem to ignore the reality of what has happened in the country.

The current system has been one of squandering and stealing oil for decades.

Venezuela’s oil sector, once the most efficient in the industry, has been systematically looted and weaponised by the socialist Chavez-Maduro regime and its political allies, turning the world’s largest proven reserves into a poverty machine instead of a development engine.

Any serious recovery will require dismantling this network of political exploitation, restoring the rule of law, recapitalising PDVSA, and orienting exports in transparent market conditions.

From an oil superpower to a poverty machine

Venezuela went from being one of OPEC’s most efficient producers, reaching more than 3.5 million barrels per day, to a marginal supplier pumping barely 1 million barrels per day.

Despite holding around 20 per cent of global proven crude reserves, production is now less than one per cent of global output, with a collapse in investment, technology, and destructive governance.

Venezuela’s GDP is still below pre‑Chavez levels from more than 26 years ago

The socialist regime has squandered an estimated 300 billion dollars in oil income on clientelism, ideological projects, and opaque foreign deals that left no productive legacy at home.

Leaders of the dictatorship became extremely wealthy while the country was demolished with a clear objective: create a dependent and scared society.

Venezuela’s GDP is still below pre‑Chavez levels from more than 26 years ago; most of the country lives in poverty (90% poverty, 76% extreme poverty) and is suffering one of the largest refugee crises in the world, with 8 million exiled.

The first looter: Chavismo and PDVSA

The biggest thief of Venezuelan wealth has been its own dictatorial regime.

PDVSA was transformed from a technically valued company into a politicised cash machine, purged of more than 18,000 qualified professionals in 2003 and turned “red from top to bottom” to finance the Bolivarian project, according to ex-minister Rafael Ramirez.

Recent scandals alone uncovered tens of billions more lost through black‑market sales, crypto schemes, and uncollected receivables from intermediaries

Transparency Venezuela and other sources point to at least 42 billion dollars stolen in PDVSA‑related corruption schemesabroad, while the ex-planning minister estimates more than 300 billion dollars in misused or diverted oil income since 1999.

Recent scandals alone uncovered tens of billions more lost through black‑market sales, crypto schemes, and uncollected receivables from intermediaries, according to Credit Suisse.

External allies as extractive partners

The current propaganda says that “the United States just wants Venezuelan oil.” This message deliberately hides who is taking the country’s oil for free or on favourable and opaque terms

Recently, around 80 per cent of Venezuela’s exports have gone to China, largely as repayment for tens of billions in oil‑for‑loan deals that mortgage future production and leave no real net income in Caracas.

The Cuban dictatorship has received up to 115,000 barrels per day of oil for free, even as Venezuelans endured gasoline and power shortages.

Russian and Chinese companies have built up significant reserves and control over logistics in joint ventures

The regime exported security agents and repression experts, while Havana then re‑exported part of that crude oil and products, keeping the US dollars that never reached Venezuelan public services.

The Iranian regime has used barter arrangements—gasoline, spare parts, and repression “expertise” in exchange for crude and gold—all in structures designed to sustain the regime rather than the Venezuelan economy.

Russian and Chinese companies have built up significant reserves and control over logistics in joint ventures that were set up without clear rules or fair competition.

Corruption, subsidies, and the fiction of a blockade

The Maduro dictatorship often uses the narrative of a US “blockade” to disguise two facts: first, Venezuela maintains commercial relations with all major economies, and the US is one of its main trading partners; second, US measures have been explicitly linked to democratic conditionality rather than resource seizure.

Venezuela is, additionally, one of the most subsidised economies in the world, receiving tens of billions of dollars of support from Russia and China.

Furthermore, the Venezuelan economy was already collapsing before any sanctions were implemented.

The regime itself used sanctions as an excuse to deepen black‑market operations and discretionary deals that enriched the dictatorship leaders while depleting and decapitalising PDVSA.

The United States is currently the world’s largest oil producer, at 13.8 million barrels per day

According to reports from Infobae, Maduro and his family have accumulated more than 3.8 billion dollars in offshore accounts. The Swiss government has ordered the freezing of all the family accounts in the country.

The claim that Washington needs Venezuelan heavy crude to avoid an energy crisis is simply nonsense.

The United States is currently the world’s largest oil producer, at 13.8 million barrels per day, and is effectively energy independent while still importing and exporting different grades for refining optimisation and trading.

US refiners can source heavy oil from multiple stable suppliers, including Canada, Mexico, Saudi Arabia, the Emirates, Kuwait, and others.

The preconditions for restoring Venezuela’s oil sector

Restoring Venezuela’s oil sector is technically and financially possible but will take years and at least 100 billion dollars in investment.

In the short term, rehabilitating existing fields and infrastructure could raise production to 2 million barrels per day. In the medium term, developing new projects in the Orinoco Belt would require substantial capital injections.

To recover Venezuela’s oil sector and benefit citizens, four conditions need to be met:

Recovering property rights, legal security, and independent institutions so that PDVSA stops being a political arm and recovers its status as a professional operator.

Auditing and restructuring PDVSA’s debt and those opaque oil‑for‑loan contracts is essential to recover future production from illegitimate commitments.

Opening the sector to credible international firms from Europe and the US with transparent contracts, arbitration mechanisms, and clear fiscal frameworks that maximise net revenue to the Venezuelan state and citizens.

This will benefit Chinese and Russian companies as well, as they have lost billions in the country.

Redirecting oil income from ideological spending and foreign clientelism towards stabilisation, infrastructure, social services, and healthcare.

Venezuela only has two options: maintaining a narco-dictatorship where Cuba, Iran, China, Russia, and the regime elite extract rent from oil wealth and a starving nation, or recovering an open, rules‑based framework in which Venezuela’s oil finally serves its people instead of their political leaders and foreign supporters.

The recent weakness in oil prices is driven by a combination of a rising supply from OPEC+ and a slowdown in Chinese oil demand.

The increase in supply follows the Saudi Arabia strategy to hurt suppliers that overproduce. However, demand weakness is a more dangerous trend because it may be a long-term issue, considering that the manufacturing sector is in contraction.

Brent crude is currently trading significantly below the $63 a barrel WTI mark, traditionally considered the price that most producers require to break even. However, there are many misconceptions about the long-term breakeven price.

U.S. shale producers are more efficient than what many analysts believe. According to a 2025 survey, producers in the Permian Basin—the most productive U.S. shale region—are profitable at $61 per barrel (WTI) for new wells.

However, existing wells can break even at around $33 per barrel, leaving the blended average close to $40 per barrel, which suggests a very profitable environment even at today’s prices.

OPEC+ policy shift

OPEC+, the alliance of major oil producers led by Saudi Arabia and Russia, has made a notable policy shift in 2025.

After years of restraining output to support prices, the group has embarked on a series of consecutive and accelerated production increases.

In July, eight OPEC+ members will raise output by 411,000 barrels per day (bpd)—the third consecutive monthly hike. Once completed, the alliance will have offset almost half of the 2.2 million bpd voluntary cuts initiated in late 2024.

OPEC+ is keen to defend its market share and show the importing countries that it is a reliable partner

Saudi Arabia is the OPEC member with the largest spare capacity, at around 2.5 million bpd, and a very low production cost, at around $6 per barrel.

The kingdom is trying to penalise OPEC+ members, including Iraq and Kazakhstan, that have consistently exceeded their production quotas. Thus, the alliance legitimises some overproduction by raising official targets, which benefits the lowest-cost producers, mostly Saudi Arabia and the Emirates.

OPEC+ is also concerned about non-OPEC producers, particularly the U.S., rapidly increasing output.

Therefore, OPEC+ is keen to defend its market share and show the importing countries that it is a reliable partner that guarantees supply security and prices that are acceptable for customers and producers.

Healthy market fundamentals

No one can forget that Saudi Arabia is the global central bank of oil and seems to be keen on reminding everyone of its critical role in the stability of the oil market.

Considering the strength of the relationship between Saudi Arabia and the Trump administration, proven by the recent successful trade agreements, the kingdom is the key driver in the decision to boost output.

It helps to reduce inflation and secures a profitable business partnership between the two nations.

Reducing output would have a negative long-term effect on producers

OPEC+ asserts that its actions are guided by “a steady global economic outlook and current healthy market fundamentals”, a stance that contrasts with the pessimistic predictions of some analysts. In fact, despite a weak manufacturing environment, oil demand is reasonable.

There is another important factor behind the production hike. Reducing output would have a negative long-term effect on producers if importer nations perceived that OPEC+ members only wanted to artificially boost prices.

OPEC+ is presenting itself as the reliable and affordable partner to importers. However, it is not just evidence of the strength of the relationship between Saudi Arabia and the United States, but the close link between Russia, an OPEC+ invited guest, and China.

Who benefits and who loses?

China is the world’s largest oil importer and a strategic partner of Russia in many areas. In a moment where China’s economy may suffer due to the ongoing trade disputes, OPEC+ is coming to support the U.S. in its fight to combat inflation and China in its transition period of trade negotiations.

Chinese refiners are cutting processing rates amid a slump in factory activity and an ongoing housing market crisis.

The International Energy Agency (IEA) has repeatedly downgraded its outlook for Chinese oil consumption. The IEA now expects China’s oil demand to grow modestly in 2025.

China’s apparent oil demand fell by 410 thousand barrels per day year-on-year in April (-3%), according to Morgan Stanley

Global oil demand is expected to reach a peak by the end of this decade, with the IEA projecting world oil demand at 105.6 million bpd in 2029.

The recent increase in productions helps importers and the most efficient OPEC members.

China benefits from cheaper oil and gas, the U.S. manages to keep inflation under control without impacting the profitability of shale producers, Saudi Arabia re-establishes itself as the global central bank of oil, and Russia enhances its exporting capabilities to Asia.

Who loses? Venezuela, Iraq, Iran and Mexico, the members of the alliance that need higher oil prices to solve their fiscal imbalances.

Despite these recent challenges, global oversupply of crude is temporary. The World Bank forecasts that global oil supply will exceed demand by an average of 1.2 million bpd in 2025 and financial institutions such as JP Morgan and Goldman Sachs have slashed their price forecasts to $66-67 a barrel (WTI).

However, the market is expected to return to balance by 2026 when all trade negotiations have been completed. Global oil demand is expected to plateau by the end of this decade, with the IEA projecting world oil demand peaking at 105.6 million bpd in 2029.

Saudi Arabia and Russia may have traded some short-term profits for long-term alliances, and the competitiveness and efficiency of global producers will increase with the short-term price pressure.

The government of Spain wanted to be a leader in achieving net zero targets. With its short-sighted and destructive policy, the Spanish government achieved absolute net zero: zero electricity, zero telephone, and zero security of supply.

Unfortunately, the Spanish blackout is yet another alarm sign of the disaster that governments are creating with net zero policies.

Blackouts, which should have been something obsolete and forgotten, have become the norm since politicians have begun to politicise energy.

Instead of promoting affordable, reliable, and abundant energy for citizens, politicians all over the world, especially in developed nations, have compromised supply security and competitiveness because the priority was to impose a volatile and intermittent energy mix dictated by renewables.

Furthermore, this ideological extremism that informs many energy policies ignores the need to mine for copper, lithium and rare earths or the environmental impact of batteries.

Renewables are positive in a balanced energy mix with enough baseload energy that works all the time -nuclear and hydro- providing inertia and stability to the grid, with natural gas as a back-up.

Excessive dependence on renewables makes the grid unstable and the system unmanageable due to their volatile and intermittent nature.

Furthermore, the electrochemical storage batteries that the Spanish government hails as the solution to a 100% renewable mix have a two-hour guarantee.

The causes of the worst blackout in Spain’s history

Other countries have suffered power outages recently, including Australia in 2016, Germany in 2017, and the United Kingdom in 2019.

However, none of these were as dramatic and scandalous as the one in Spain. The event is the worst blackout in the history of Spain and the only power outage in the OECD that left citizens without any type of communication for more than ten hours.

What I find unacceptable is to hear Prime Minister Pedro Sanchez lying about companies and the causes of the worst blackout in Spain’s history.

The Spanish grid operator, Red Electrica, warned the stock market regulator just over two months ago about the risk of “generation disconnections due to high penetration of renewables” and the “loss of firm generation capabilities.”

“The closure of conventional generation plants implies a reduction in firm power and the balancing capabilities of the electricity system” – Report

However, the politically appointed chairman of the company, Beatriz Corredor, said in interviews that, “It is not true that nuclear is safer for supply, nor that renewables make the system more vulnerable.”

Both statements have been disproven by her own company and by the European grid operators.

What Corredor says in the media today is the opposite of what her company warned investors.

It warned that the withdrawal of a firm generation, such as nuclear, poses a medium- and long-term threat.

In its 2024 report (Consolidated Annual Accounts), it stated: “The closure of conventional generation plants such as coal, combined cycle, and nuclear (because of regulatory requirements) implies a reduction in firm power and the balancing capabilities of the electricity system, as well as its strength and inertia. The closure could increase the risk of operational incidents that may affect supply and the company’s reputation. This incident represents a risk, with a short- and medium-term horizon. The risk is in the company’s own activities and those of clients and users.”

Dependence on volatile technologies

In September 2020, the grid operator published “System Foresight Studies and Needs for its Operability,” in which it admitted that decreasing inertia levels in the system—about 30% lower in 2030 compared to 2020—could pose a risk of unacceptable frequency deviations in the event of major imbalances.

Additionally, it identified a worsening of frequency stability conditions in the electrical system, highlighting a need for additional inertia provisions, such as those provided by nuclear.

The Spanish competition regulator warned various times since November 2023 about voltage problems

The Spanish competition regulator warned various times since November 2023 about voltage problems: “At certain times, the voltages of the transmission network have reached maximum values close to the thresholds allowed by regulations, even exceeding them at specific times.”

Additionally, Spain’s Red Eléctrica said in September 2023 that, “right now, REE doesn’t have enough tools to stop voltages in the transmission network from getting too high, sometimes going beyond the allowed limits and even causing disconnections of power generation and consumption facilities due to overvoltage.”

This problem has worsened recently due to several factors, citing the loss of base energy and greater dependence on volatile and intermittent technologies such as solar (Technical-economic report of the regulatory demonstration project for the new voltage control service, September 2023).

A report by the European Network of Transmission System Operators for Electricity (ENTSOE), published on January 10, 2025, warned about the risk of reduced system inertia accompanying the decarbonisation of the electricity sector and the increased penetration of renewables and about the need to take measures to ensure frequency and avoid blackouts (“Recovering power system resilience in case of system splits for a future-ready decarbonised system, Project Inertia Phase II”).

Why was this risk hidden?

Media close to the Spanish government called the risk of a great blackout a “great hoax”. Red Electrica published a post on social media platform X on April 9, 2025, saying that “there is no risk of a blackout” and that “Red Electrica guarantees supply.”

Nineteen days after saying “there is no risk” and after dozens of technical warnings, Spain suffered the worst blackout in its history, one of the longest in developed countries, the largest in number of people affected in the European Union, with more than 60 million people without electricity supply, and the only one in the OECD that paralysed all communications with an almost total collapse of mobile networks, internet, and landlines.

The government wanted to celebrate that Spain led the European decarbonisation targets

Why was this risk hidden?

For ideological reasons, the government concealed the grid risk. Anyone who spoke about supply security and competitiveness was accused of being anti-European, and anyone who warned about blackout risk was called a “hoaxer” because the government wanted to celebrate that Spain achieved 100% renewables in a day.

Many activists applauded when nuclear plants had to close, asphyxiated by taxes far exceeding their revenues.

The government wanted to celebrate that Spain led the European decarbonisation targets, but hid that there were constant interruptions to industry and several blackout risk warnings.

Energy policy is decided by activists

Spain’s grid operator, Red Eléctrica, has some of the best technicians in the world. Its specialised staff is an example of professionalism that is recognised worldwide.

However, government sectarianism, the political appointments of executives, and people who ideologise energy prevent serious discussion about the challenges of electrification and nuclear phase-out.

This is a ridiculous era in which nuclear energy is right-wing in Spain but left-wing and popular in France

Energy policy is decided by activists who have no idea about energy and for whom everything renewable is always good but at the same time reject mining copper or lithium, as if renewables were created by singing songs.

These activists fill public management and high corporate responsibility positions due to political allegiance and have a sectarian and short-sighted vision of energy that seems straight out of a kids’ movie where energy is generated by singing and dancing.

Moreover, these activists aren’t concerned about supply security because their goal is social control.

What they do care about is power, which is why Spain’s previous minister of energy transition was anti-nuclear in Spain and pro-nuclear in the European Commission, approving the extension of Belgian nuclear plants.

Eliminating nuclear is unacceptable and will lead to more blackouts, higher electricity prices, and, on top of that, moving from dependence on Russia for natural gas to dependence on Russia and China for natural gas and minerals, respectively.

This blackout could have been avoided. Nothing was done, and, worse, nothing is being done.

Developed economies must abandon the misguided and evidently counterproductive policies that damage supply security and competitiveness and, worst of all, are supposed to be green but do not improve the environment.

The world requires all technologies, and energy policies must meet the objectives of reliability, affordability, and abundance.

We must oppose this madness coming from unscrupulous politicians with no idea about energy.