Rising geopolitical tensions in West Asia are once again bringing the energy sector into investor focus. The Israel-Iran conflict has lifted crude oil prices and revived discussions around whether investors should increase exposure to energy-linked investments as a hedge against global uncertainty.
Consider this: Crude oil prices jumped to $78 per barrel from $70 per barrel in few days amid fears of supply disruptions through the Strait of Hormuz, a route that handles over 20 percent of global oil flows. Ongoing uncertainty could keep prices elevated in the near term.
“Developments in the Middle East could increase pricing and procurement risks for crude oil and liquefied natural gas (LNG), posing substantial challenges for India, which has more than 85 percent and 50 percent import dependency, respectively, in these items,” said Sehul Bhatt, Director, Crisil Intelligence.
Brent crude oil prices have already climbed above $78 per barrel. While prices may average around $65–70 in CY2026 if geopolitical tensions ease, a prolonged conflict could drive them significantly higher, Bhatt said.
With crude oil prices expected to remain elevated, how can an investor invest in the energy theme?
Energy prices typically spike when supply routes are threatened, boosting upstream oil and gas companies. In periods driven by geopolitical shocks, energy historically outperforms as supply concerns push prices higher.”
“Elevated energy prices improve realisations for power and utilities, while demand remains steady. Allocating selectively across energy can convert geopolitical stress into portfolio resilience,” said Kirang Gandhi, a Pune based financial mentor.
How can one invest in the energy theme —
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Global energy ETFs
Can one invest in global energy ETFs such as Vanguard Energy ETF or the Energy Select Sector SPDR Fund from India?
“Yes, global energy ETFs can offer partial protection during wars and oil shocks, as crude prices often rise amid supply disruption fears, boosting energy company earnings. Funds like the Vanguard Energy ETF or the Energy Select Sector SPDR Fund provide diversified exposure to oil and gas majors that tend to benefit when prices spike,” said Aditya Agrawal, CFA, Chief Investment Officer at Avisa Wealth Creators.
Investors can access these ETFs through international brokerage accounts or global investment platforms, subject to regulatory limits.
“However, energy ETFs are still equities and can remain volatile if broader markets correct. A more balanced strategy would combine energy exposure with gold, high-quality bonds, and some cash allocation. Diversification, prudent position sizing, and periodic rebalancing remain key in war-like situations,” said Agrawal.
Invest through domestic mutual funds
Another way is to invest in energy-focused mutual funds. Data from Value Research shows strong one-year performance across energy schemes, led by DSP Natural Resources and New Energy Fund, which delivered about 42.6 percent returns, followed by ICICI Prudential Energy Opportunities Fund (31.9 percent) and SBI Energy Opportunities Fund (29 percent).
Investors comfortable with higher risk may also consider direct exposure to energy companies, particularly upstream oil producers and integrated energy firms that typically benefit from rising crude prices. However, stock selection requires careful assessment of global price cycles, currency risks and policy developments.
What are the risks?
For investors, energy funds may work better as a tactical allocation rather than a core portfolio holding. Limiting exposure to about 5-15 percent of equity allocation and investing gradually may help balance risk and opportunity.
Experts caution against chasing short-term geopolitical rallies. Energy funds are sectoral funds, meaning they carry higher volatility and concentration risk compared to diversified equity funds. Oil prices remain cyclical and closely linked to global growth and supply dynamics, meaning gains during conflicts can reverse quickly once tensions ease.
“For retail portfolios, we prefer a more structural approach, maintaining strategic allocations to gold or precious metals as established hedges during periods of uncertainty, along with diversified global funds that allow professional managers to capture such opportunities within a broader mandate,” said Niharika Tripathi, Head of Products and Research at Wealthy.in, a wealth management platform.
Energy ETFs may benefit during crude spikes triggered by geopolitical events, but they represent tactical macro exposures. For most retail investors, reacting to individual events by adding single-sector ETFs can become timing-driven.
“Tactical exposures can certainly be valuable, but they are best implemented by experienced global fund managers within disciplined, diversified portfolios,” added Agrawal.
In our view, long-term resilience comes from thoughtful asset allocation design, where tactical opportunities are accessed through structured frameworks rather than executed as standalone event-driven trades, added Tripathi.