An Ariel View

The Big Picture

• Heading into the conflict, the oil market was in surplus while the liquefied natural gas (LNG) market was on its way to oversupply.
• The sudden closure of the Strait of Hormuz disrupted the most critical global energy chokepoint.
• Oil and gas markets will be undersupplied until Hormuz reopens, resulting in higher energy prices.

Why It Matters

• The Strait carries 18% of global oil and 19% of global LNG.
• Even with rerouting and reserve releases, the supply gap will remain meaningful.

Before the Conflict

• The oil market was in excess and the LNG market was moving toward surplus.
• Both OPEC+ and non-OPEC+ production were climbing, creating a muted pre-war price outlook.

Our Base Case: Limited Conflict—Oil Flows Resume

• Iran’s offensive capacity has been sharply reduced.
• Economic and political incentives for the U.S. and the majority of its global allies lean toward a quick end to the war.
• Iran’s regime prioritizes survival over escalation that unites the world against it.

Our view: It will be a limited conflict with the Hormuz shipping lanes reopening and energy flows starting to normalize in weeks, not months.

That said, we test for a range of outcomes.

Our Bull Case: Regime Change

• Government collapse, pro-Western leadership emerges.
• Sanctions lift; country’s oil production increases.
• Prices fall below pre-war levels.

Our Bear Case: Ongoing Disruptions

• Iran can still threaten tankers with drones and mines.
• Regional production remains below normal.
• Energy prices and inflation stay elevated.

BOTTOM LINE:

Ariel’s actively patient investment approach helps us stay steady through headline volatility. Given the strong fundamentals of our holdings, portfolio changes have been limited. In times like these, we view market dislocations as attractive buying opportunities. As long-term investors, patience and discipline continue to remain essential.

If you would like to explore these implications further, our team is available to speak at your convenience. We appreciate your ongoing support and interest.

Investments in non-U.S. securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving non-U.S. economies, markets, political systems, regulatory standards, currencies and taxes. Investments in emerging markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price. Investing in equity stocks is risky and subject to the volatility of the markets. Opinions expressed are current as of the date of this commentary but are subject to change. This commentary does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. There is no guarantee that any expressed views will come to fruition or any investment will perform as described.

The information above is provided for educational purposes only and is not tax, legal, financial planning or investment advice. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or investment products or funds. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing in equity stocks is risky and subject to the volatility of the markets. The performance of any single portfolio holding is no indication of the performance of other portfolio holdings. A value investment strategy seeks undervalued stocks that show a strong potential for growth. The intrinsic value of the stocks in which a value strategy invests may be based on incorrect assumptions or estimations, may be affected by declining fundamentals or external forces, and may never be recognized by the broader market. Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC, an affiliated entity of Ariel Investments, LLC. The Ariel mutual funds may be offered only to persons in the United States. For a current prospectus which contains this and other information about the funds offered by Ariel Investment Trust, call us at 800-292-7435 or click here. Please read the prospectus carefully before investing.