(Reuters) – The Middle East conflict has delivered BP a much-needed windfall through higher oil and gas prices, strengthening CEO Meg O’Neill’s hand as she works to steady the ship.
But the Iran war has also made the future of the energy business less predictable, complicating BP’s efforts to chart a long-term course.
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BP today stands on far firmer ground than it did as recently as February, when it cut planned capital spending for 2026 amid growing concerns that looming oil and gas surpluses would weigh on prices and earnings.
The outbreak of the Iran war on February 28 turned that narrative on its head.
The ensuing surge in energy prices, amid the near-complete closure of the Strait of Hormuz, sharply tightened global oil and liquefied natural gas supplies, sending buyers scrambling for alternative cargoes. BP and its Big Oil peers were among the largest beneficiaries.
The British oil major reported second-quarter profit of $5.7 billion, the highest since 2022, lifted by elevated oil and gas prices, exceptionally strong refining margins and robust performance from its marquee trading business.
The surge in cash flow helped reduce BP’s net debt by $3 billion from the previous quarter to $22.5 billion, allowing it to move forward by one year to the end of 2026 its goal of cutting net debt to $14 billion-$18 billion.
This stronger financial position gives O’Neill a far more comfortable backdrop than the one she inherited when she took over as CEO in April with a mandate to stabilise BP after a turbulent few years marked by leadership scandals, strategic drift and a failed attempt to transform the company into a renewable energy champion.
But once investors have digested the benefits of the Iran conflict, the inevitable question is, what comes next?
The answer is far from obvious.
STRONGER, BUT LAGGING RIVALS
There are already clear signs O’Neill intends to move fast to revamp the company’s strategy.
In her first four months in office, BP announced job cuts, overhauled its leadership team, dismantled its low-carbon division and collapsed the corporate structure back into a traditional upstream-downstream organisation.
BP has also accelerated asset sales. A symbolic move came last week when the company put its North Sea business up for sale, retreating from an historic oil province that defined a long chapter in BP’s own history.
Yet it remains unclear whether investors have fully bought into O’Neill’s vision. BP’s shares have fallen around 3% since her arrival, underperforming rivals including Shell and TotalEnergies.
While some of this caution is a natural response to BP’s strategic drift in the first half of the decade, which led to roughly $50 billion in write-offs, the market’s wariness also reflects the extraordinary volatility that has swept through energy markets this year.
Investors are trying to distinguish between a wartime windfall and a lasting improvement in the company’s prospects.
WHAT’S NEXT, MEG?
BP will likely seek to provide some clarity on this when it unveils its updated long-term targets in the coming months.
They will almost certainly reinforce the direction O’Neill has already set, focusing on oil and gas exploration, operational performance, debt reduction and shareholder returns.
Yet the very conflict that strengthened BP’s finances may also have complicated its future.
The Iran war exposed the vulnerability of an energy system that remains heavily dependent on a handful of supply routes and producing regions.
Governments and companies that have suffered the most, particularly those in Europe and Asia, are reassessing their energy-security strategies, including their reliance on imported fossil fuels.
Some are likely to accelerate investment in domestic energy sources, from renewables and nuclear power to coal, while pushing ahead with the electrification of transportation, industry and heating.
Others may instead seek to boost domestic hydrocarbon production where possible, or build larger strategic inventories to shield themselves from future supply shocks.
Either way, the assumptions underpinning future energy demand are becoming harder to forecast.
The conflict has also raised uncomfortable questions about the future of investment in the Middle East itself.
Even after the crisis subsides, the long-term security of the Strait of Hormuz will likely be uncertain, underscoring the risks of concentrating future production growth in a region that remains vulnerable to geopolitical upheaval.
That poses a particular challenge for BP. The Middle East accounted for around 411,000 barrels of oil equivalent per day, or roughly 18% of the company’s production in 2025. It is also becoming an increasingly important destination for new investment.
In June, BP took a 10% stake in two large projects in the United Arab Emirates — the giant Bab gas cap project and the Ruwais LNG development. The company is also redeveloping the giant Kirkuk oilfield in northern Iraq.
EXPENSIVE CHOICES
Oil companies typically respond to uncertainty by concentrating capital on their lowest-cost and most reliable assets.
But to sustain production, let alone grow it, BP will need to invest billions of dollars in large new projects, such as the giant Bumerangue discovery offshore Brazil, while continuing to advance developments in the Gulf of Mexico, Namibia and the Middle East.
The challenge is that the post-war environment is making those investment decisions more expensive. The scramble by producers to expand output has already pushed up demand for drilling rigs, services, equipment and materials across the industry.
These pressures affect all oil companies. But BP may be more exposed than most because years of strategic upheaval and a slowdown in upstream investment have hampered its project pipeline.
For now, the Middle East turmoil has given BP exactly what it needed: stronger profits, lower debt and breathing room for a new chief executive to reshape the company.
The irony is that the same crisis has also muddied the market outlook. O’Neill’s immediate challenge may be repairing BP’s balance sheet, but her bigger one will be deciding where to place the company’s next generation of billion-dollar bets.
In an energy system reshaped by war, shifting demand and rising geopolitical risk, getting those decisions right may prove far harder than delivering a short-term turnaround.
The opinions expressed here are those of Ron Bousso, a columnist for Reuters.
Ron Bousso
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