Ice and fire! Middle East war ignites the European oil and gas stocks frenzy, while renewable energy falls into a deep freeze due to inflation expectations.

The Middle East wars have caused unprecedented turmoil in the oil market. It is expected that European energy companies will benefit from the rise in oil prices, while the performance of other stocks will lag behind. Although this largely depends on how the Iran conflict develops, investors have been flocking to companies that stand to benefit from the increase in European refining profit margins and finished oil prices. Since the outbreak of the war, the Stoxx Europe 600 energy sector has climbed 6%. Berenberg bank analyst Henry Tarr and others wrote in a report, "While almost all companies in the sector are expected to benefit, the relative performance within the energy sector to some extent depends on the outcome of the conflict and its impact on various commodities." However, some stocks of wider European energy companies are being sold off. Infrastructure company stocks with significant operations in the region have fallen, as have some renewable energy and Clean Energy Fuels Corp. stocks, which are being hurt by rising inflation and borrowing costs. With no sign of easing and Brent crude oil prices hovering around $106 per barrel, let's take a look at the performance of energy-related stocks: Oil and Gas Stocks Spain's Repsol is Berenberg bank's top pick, as analysts believe that due to refinery damage, oil prices may remain high even after the conflict ends. This Spanish oil and gas company is expected to benefit from this. The company does not have production operations in the Middle East. Other companies in the region with little or no exposure include Norway's National Oil Company and Portugal's Galp Energia, both of which have seen double-digit percentage gains as of last weekend. Gabelli Funds portfolio manager Simon Wong said that these companies have relatively not hedged, allowing them to benefit more from the rise in energy prices. Companies with significant operations in the region help explain the difference in stock price performance. For example, according to industry research, TotalEnergies is the Western energy giant with the largest exposure to the Gulf region, and its stock price is only slightly higher than the market average. The French company has important operations in Qatar, home to the world's largest liquefied natural gas export facility, which is currently closed. European natural gas inventories are at about 30%, increasing the demand for importing liquefied natural gas before next winter. Alternative Fuel Stocks The crisis has led to rising prices for fossil fuel alternatives. Finnish renewable diesel and aviation fuel producer Neste Oyj's stock has risen by 28% since the war broke out. This boost may even continue after the fighting ends if refineries in the region remain shut down. Florence Schmit, energy strategist at Rabobank, said, "Once the issues are resolved, you can't just let them run again. This will clearly further delay production that can enter the market." Renewable Energy Stocks The prospect of supply chain disruptions, coupled with rising inflation and interest rates, has heightened concerns about renewable energy. Although Jefferies Financial Group Inc. has advised global clients not to panic, so far, the sector's performance in Europe has lagged far behind its fossil fuel counterparts. Vestas Wind Systems and Nordex are among the laggards. Concerns about rising inflation and borrowing costs will put pressure on capital-intensive renewable energy developers and equipment manufacturers. A similar situation in 2022 triggered a sell-off lasting until 2025. Siemens Energy's stock price is at the lower end of the energy subsector. The company provides power for artificial intelligence megaprojects, and analyst Omid Vaziri said, "If political tensions with GEO Group Inc lead to delays in project awards or financing across the entire Middle East region, there will be execution risk." Looking ahead, Gabelli Funds research analyst Jens Zimmermann said he expects investors not to lose interest in renewable energy, as the Middle East crisis highlights Europe's dependence on imported fossil fuels. Oil Service Stocks Oilfield services stocks have lagged behind as operational risks in the Middle East overshadow the long-term benefits of rising oil prices. The merging Italian company Saipem and Subsea 7 are both involved in the Middle East through offshore projects and subsea contracts. According to Arctic Securities, about a quarter of Saipem's order backlog is related to the region, and Subsea 7 has about 10% of its order backlog in the region, including a contract with Saudi Aramco. Both Subsea 7 and Saipem stocks have fallen by 6%. "Traders are worried that contracts with Middle Eastern companies may be canceled or that they may declare force majeure," said Arctic Securities analyst Lukas Daul. "The rise in energy prices is also favorable to oilfield service companies, but due to all the uncertainty, the oil giants are certainly not investing at the moment."