Energy Markets React to Ukraine and Iran

Iran Conflict’s Hidden Supply Shock
The Iran conflict is disrupting far more than oil. With the Strait of Hormuz effectively blocked, key Gulf exports like helium and fertilizer are under pressure, threatening supply chains tied to semiconductors, MRI machines, space launches and global agriculture. The broader risk is a new wave of inflation driven not just by energy, but by rising technology, healthcare and food costs.

Trump: Iran Lets 10 Tankers Through Hormuz
President Trump said Iran allowed 10 oil tankers to pass through the Strait of Hormuz, calling it a positive sign in ongoing negotiations. While the move may provide limited short-term relief, it does not restore normal oil flows through the critical chokepoint. Iran is not fully reopening the Strait but is instead using access as leverage, allowing just enough movement to ease pressure while maintaining control over global oil trade.

Ukraine Strikes Key Russian Oil Ports
Ukraine’s drone campaign has hit two of Russia’s most important Baltic oil export hubs, Ust-Luga and Primorsk, sparking fires and disrupting a major share of Russia’s seaborne oil flows. Together, the ports handle a significant portion of Russia’s maritime exports, so the attacks are adding fresh pressure to already tight global energy markets. With Middle East supply also under strain, the strikes are increasing concerns over reduced available barrels, higher oil prices and renewed volatility in crude and refined products.

Wright Pushes for More U.S. Oil Output
Energy Secretary Chris Wright urged oil and gas producers to increase output as crude prices rise during the Iran war, saying higher prices are the market’s signal to produce more. He described the disruption as temporary and pointed to Strategic Petroleum Reserve releases as a short-term measure to help ease pressure. Even so, many producers remain cautious about ramping up too quickly because of uncertainty and market volatility.

Energy Market Perspective

Why Energy Prices Matter Right Now
The recent move in oil and gas prices is about more than headlines out of the Middle East. It is a reminder of how quickly global conflict can tighten supply, lift commodity prices and ripple through the broader economy.

For investors, higher energy prices can mean renewed inflation pressure, added market volatility and increased attention on domestic energy production. It also reinforces a basic reality: when global supply is threatened, reliable U.S. oil and gas production becomes even more important.

This environment is a strong reminder that energy is not just another sector. It is foundational to the economy, and when disruptions hit, the value of secure, domestic production comes back into focus.

Geopolitical instability is once again showing why oil and gas remains a critical investment theme, especially when supply security and energy demand are both front and center.

Ask the "Tax Guy"

Tax laws are always changing, and even small updates can have a big impact on an investor’s strategy, returns, and planning. With so much noise around new legislation and shifting IRS rules, a lot of investors are wondering what actually matters most. So, we posed the question to King's EVP of Tax, Rex Gifford.

Q.  Does the character or classification of the type of your taxable income impact investments in oil and gas? 

A: Depending on the source of your current-year taxable income, the tax benefits of investing in oil and gas may be limited. The major sources, or classifications, of taxable income are:

1. Earned income – salaries, wages, pensions, and qualified plan distributions
2. Portfolio income – interest, dividends, short-term capital gains, and long-term capital gains; income that is typically not subject to self-employment tax
3. Passive income – rental income, royalties, and income from businesses in which no material participation occurs
4. Non-passive income – income from participation in S corporations, partnerships, or sole proprietorships; typically referred to as business income

As discussed in last week’s Newsletter No. 157, oil and gas investing can generate two major types of first-year, or investment-year, deductions:
“By acquiring a working interest in oil and gas wells, two specific income tax deductions may be claimed as the wells are drilled, tested, completed, stimulated, and equipped. These two deductions are intangible drilling costs (“IDCs”) under IRC Section 263(c), and bonus depreciation under IRC Section 168(k), which allows 100% of tangible costs to be expensed. These deductions accelerate current-year deductions that may be used to reduce taxable income.”
However, with the passage of the Big Beautiful Bill, which makes IRC Section 461(l) permanent, non-corporate taxpayers are subject to a limitation on excess business losses. If your taxable income comes primarily from non-business sources, such as those described in items 1, 2, or 3 above, the amount of deductions generated by investing in oil and gas may be limited.

This potential limitation is reported and calculated on Form 461. For 2026, the excess business loss limits are:

1. Single filers: $256,000
2. Married filing jointly: $512,000

Prudent non-corporate investors in oil and gas who seek to reduce their taxable income should be cognizant of these permanent excess business loss limitations.

Have a tax question you’d like covered in a future issue? Email it to theupside@kingoperating.com.

DISCLOSURE: For educational purposes only. Not tax, legal or accounting advice. Please consult your tax professional before making any investment or tax-related decisions.

Happening at King