Shell vs. BP: Better Oil Stock for the Iran War?

Shell (NYSE: SHEL) and BP (NYSE: BP) are two of the world's largest integrated energy companies. They have globally diversified portfolios, and their businesses span the entire energy value chain. Diversification is a good thing, but right now there's a complication because of the geopolitical conflict in the Middle East.

On the positive side, the Middle East conflict has driven up oil prices. On the negative side, the industry's operations in the region have been disrupted. Both Shell and BP have operations in the region. How should investors think about these two stocks in light of the ongoing conflict?

The best play is to play it safe

If you are worried about the conflict in the Middle East, you can avoid it almost entirely if you buy a company that has no exposure to the region. For example, Devon Energy (NYSE: DVN) is a U.S.-based oil producer. Its production isn't affected by the conflict, but it still benefits from high oil prices.

Or you could sidestep oil prices altogether with a fee-based midstream business, like Enterprise Products Partners (NYSE: EPD). Enterprise gets paid based on the volume moving through its energy infrastructure system, with volumes hitting record levels in the first quarter of 2026.

That said, integrated energy companies like BP and Shell are an attractive way to gain broad exposure to the global energy market. That remains true despite the disruptions in the Middle East. For long-term investors, integrated energy companies are a good investment choice in the energy sector. And Shell and BP offer attractive dividend yields of 3.4% and 4.6%, respectively.

What about the conflict in the Middle East?

Both companies will be impacted by the Middle East conflict. Roughly 22% of BP's production is in the region, according to Reuters research. Shell, by contrast, generates around 20% of its production from the region. Some of Shell's assets have sustained damage during the conflict.

Exposure, however, is just one way to look at the issue. A better question might be which of these European energy giants can withstand the adversity they may face due to the conflict. The answer there is almost certainly Shell, which has a much stronger balance sheet. BP's debt-to-equity ratio is a worryingly high 1.3x, well above its peers'. Shell's ratio is a far more reasonable 0.4x.

It seems as if the market isn't recognizing this fact, however, because BP's stock is up 22% so far in 2026, as of this writing, while Shell's stock has risen 15%. Recent corporate changes at BP, meanwhile, raise another concern. The company has had three CEOs in as many years and has just pushed its Chairman out due to governance concerns. In other words, the highly leveraged company is taking on a material geopolitical event while its leadership is in flux. That's not ideal.

BP will survive, but Shell is probably preferable

BP will easily survive the conflict in the Middle East, and so will Shell. If you think short-term, BP appears less affected right now, highlighting the damage to Shell's investments in the region. That could make BP a better option. However, rapid management changes and high leverage are issues that shouldn't be ignored.

Shell's financial strength, meanwhile, means it should be able to both weather the conflict and what lies beyond it in relative stride. That could actually make it a better option today, given that its stock hasn't risen as much as BP's. The seven percentage point advantage BP has doesn't look huge, but it is a 45% performance difference. That gap could easily close if Shell's stock advances or BP's stock declines.

That said, if you are looking to limit your exposure to the geopolitical conflict in the Middle East, the best bet could actually be a U.S. driller like Devon or a midstream operator like Enterprise. Neither one has exposure to the Middle East, and Enterprise's business isn't driven by energy prices.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends BP and Enterprise Products Partners. The Motley Fool has a disclosure policy.