European Energy Under Threat from Mideast Escalation
Spain’s Repsol could benefit from potential oil supply disruptions from Middle East

Europe is more vulnerable to Middle East tensions than the US due to its energy dependence and geopolitical exposure. Further military escalation could lead to significant supply shortages and price spikes during the winter in Europe.
US President Joe Biden said on Thursday that the US is discussing with Israel the possibility of Israeli strikes on Iran’s oil infrastructure. This might trigger further upside for the price of oil and other energy products.
Oil prices climbed for the third straight session on Thursday following Iran’s missile attacks on Israel on Tuesday. December Brent crude futures rose 5% to $77.62 a barrel on ICE Europe, the highest since August 30.

The European Union (EU) suffered a worse energy supply disruption when Russia invaded Ukraine in February 2022. Russia cut off natural gas pipeline supplies to Europe, spiking energy prices there.
In the second quarter of 2024, it imported 177.9 million tonnes of energy products worth €94.9 billion, Eurostat data showed. EU petroleum oil imports from Saudi Arabia, Libya, and Iraq to the region accounted for 23% of its second-quarter imports.

Iranian-backed actors are attacking shipping routes or threatening infrastructure that brings energy supplies to Europe. They are doing so in solidarity with Iran in its conflict with Israel.
Iranian-Backed Militias Threaten European Energy
The Shiite Houthis in Yemen have carried out nearly 100 attacks on ships crossing the Red Sea since November, acting in solidarity with Palestinians in Israel's year-long war in Gaza.
The Houthi have sent dozens of increasingly menacing emails to at least six Greek shipping companies since May, Reuters reported.
A senior official from a coalition of mostly Shiite Muslim paramilitary groups with ties to Iran threatened to halt Mideast energy supplies. European Capital Insight didn’t independently verify the threats.
Iran’s “seriously destabilizing actions” throughout the Middle East “must stop,” G7 Leaders said in an October 3 statement. They pointed to Iran’s terrorist proxies and armed groups, including the Houthis, Hezbollah, and Hamas, and Iran-aligned militia groups in Iraq.
Dimon, Lagarde Issue Geopolitical Warnings
JPMorgan’s (NYSE: JPM) CEO Jamie Dimon warned that history was repeating itself, even before the bout of Middle East violence.
“Geopolitics are getting worse,” Dimon said at the Atlantic Festival in Washington, D.C. on September 20.
"The most important thing that dwarfs all other things” since 1945 is “what's going on in Israel [and] in the Middle East” and Ukraine, Dimon said. He made his comments at Georgetown University on September 17.
European Central Bank (ECB) President Christine Lagarde issued a similar warning on September 20 that the “uncertainty ahead is profound.”
Global pressures resemble those that "took place a century ago," Lagarde said. That resulted in “economic nationalism," a collapse in global trade and the Great Depression of the 1920s, she said.
Spain’s Role in Europe Oil Supplies
While Europe could face an economic setback if Middle East energy supplies are disrupted, Spain could play a strategic role in moving petroleum products to Europe.
Spain does not rely on oil supplies from the Middle East, providing a risk buffer to any disruptions. Its oil imports are mainly imported from the U.S. (14.1%), Mexico (11.4%), and Brazil (10.8%).

Spain can distribute across and outside the country through its 11 oil port terminals. It has the largest civil pipeline network in Western Europe.
As a net exporter of refined oil products, it has a capacity of 1.59 million barrels per day.
Spain also has a total storage capacity of approximately 184 million barrels across 41 companies and over 138 sites. This includes strategic reserves managed by CORES, the Corporation of Strategic Reserves of Oil Products.
As the first point of contact for oil shipments rerouted around the Cape of Good Hope, the country ensures 90% inland oil transportation through its pipelines. For context, Germany ensures only 11%.

Repsol Could Benefit from Geopolitical Risks
Spain’s Repsol (OTC: REPYF) could benefit from potential emery-supply disruptions in the Middle East. It has limited exposure to the region and substantial investments in stable territories like the U.S. and Brazil.

The company operates five major refineries in Spain with a total production capacity of 1.013 million barrels per day. This is 64% of Spain’s entire capacity as of the first half of 2024 and stable compared to 2023.
Repsol faced price pressures primarily due to declining margins in its refining and chemical segments and Spain’s energy levy.
Yet, it still reported a net income of €1.626 billion for the same period, up 15% from the year prior. Additionally, it invested more in growth and diversifying into low-carbon generation and renewable energy.
Repsol increased dividends to €0.5 per share in July, a 30% increase compared to 2023. It also maintained a strong liquidity of €9.67 billion.
At an extremely low P/E ratio of 4.4 multiple in an industry averaging 11, Repsol stock appears undervalued. Analyst price targets range from €15 to €20.50, averaging a 46% upside to €17.72 per share as of October 4.