Energy sector rallies amid Strait of Hormuz tensions

Energy sector funds have experienced significant gains driven by escalating geopolitical tensions in the Middle East. The standoff regarding the Strait of Hormuz has effectively restricted shipping, with vessel transits dropping sharply from 31 commodity vessels to zero over a single weekend. This disruption, coupled with potential economic measures from US Treasury Secretary Scott Bessent against Iran, has contributed to rising oil prices, with Brent crude trading near US$89 a barrel.

In Canada, energy ETFs saw a weekly rise of 5.45%, extending year-to-date gains to over 43%. Leading funds include the Global X S&P/TSX Capped Energy Index Corporate Class ETF (HXE) and the iShares S&P/TSX Capped Energy Index ETF (XEG). In the United States, the State Street Energy Select SPDR ETF (XLE) rose by 7.7% in a single week, outperforming other market sectors.

Beyond geopolitics, market analysts point to several contributing factors for the rally, including the energy demands of artificial intelligence and expectations regarding Federal Reserve policy under Chair Kevin Warsh. Additionally, the International Energy Agency has warned of a potential global supply shortfall in 2026.