Higher oil prices can affect some parts of the share market more than others. However, we don’t see oil prices rising so much due to the Iran/Israel conflict as to have an overall negative effect. Despite this, it is worth revisiting how different sectors can be impacted by increasing oil prices. Here’s a breakdown of how and why oil price increases influence stock markets:

 Winners: Energy and Commodities

Companies in oil exploration, drilling, refining, and services tend to benefit from higher oil prices. Profit margins expand significantly as the price of their output (oil) increases while many of their costs remain fixed. Related industries like oilfield equipment manufacturers, pipeline operators, and LNG exporters also gain.

Losers: Transportation, Airlines, Industrials

Airlines, shipping, and logistics companies are among the hardest hit by rising fuel costs, which are a major portion of their operating expenses.

Unless these companies can hedge effectively or pass on costs to consumers (which often causes demand to fall), profits decline and stocks fall.

Consumer Discretionary Sector

As petrol and energy bills rise, consumers have less disposable income.

This impacts retailers, travel companies, car makers (especially those not focused on EVs), and restaurants.

Consumer staples may fare better as spending shifts to essentials, but overall demand sensitivity increases.

Financials and Tech: Mixed Impact

Banks may benefit from rising interest rates, but they also face the risk of loan defaults if economic conditions deteriorate.

Tech stocks, particularly those with long-dated growth potential, are hurt by higher interest rates.

High oil prices can thus shift investor preference from growth to value sectors.

Market Sentiment and Investment Behaviour

Oil price shocks often lead to higher market volatility. Investors become uncertain about inflation, central bank policy, and earnings stability.

This can result in a flight to safety:

Increased demand for gold, bonds, and defensive stocks (like utilities and healthcare).

Reduced appetite for risk assets like small caps, emerging markets.

Defensive sectors tend to outperform.

Lauren Hua is a private client adviser at Fairmont Equities.

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