Global markets are dealing with overlapping pressures — tension around the Strait of Hormuz and renewed trade friction as the Trump administration leans on China to stay out of Iran’s corner. But as history shows, markets tend to look past conflicts eventually — scorched but not scarred. In the interim, what sectors are most impacted?
Defense and energy companies are the obvious frontrunners, and their stock prices already reflect that. What’s more interesting is how higher oil prices ripple through the rest of the economy — pushing up costs across freight, fertilizer, and packaging, feeding into grocery prices, and quietly squeezing consumers. The ripple effects are everywhere, and plenty of companies are feeling the pinch. But that same disruption creates winners that are much less obvious — and that’s where we tend to find our best opportunities.
The key question right now: how much of this is short-term panic versus something that sticks around long enough to meaningfully affect company profits? Some of it resolves fast. Supply chains adjust, previously locked-in prices hold, and things normalize. There are some areas that are impacted by the war where it will take some time to bring capacity back online. And if tensions around the Strait of Hormuz ease, the companies hit hardest on sentiment often bounce back fastest.
Chemical companies — and it hits hard. Energy can account for up to 80% of their total production costs. But the mistake is writing off the whole sector. The real question isn’t who faces higher costs, but who can pass off those costs.
Take nitrogen fertilizers. Higher oil is normally bad news for producers like Yara International. But when the Strait of Hormuz closed, it knocked out roughly 30% of global fertilizer supply almost overnight. Yara International wasn’t caught up in that disruption, so while competitors couldn’t deliver, Yara could — and as the commodity price adjusted higher, the price Yara was able to charge was adjusted higher as well. Farmers can’t meaningfully cut back on fertilizer purchasing without hurting their crop yields, so demand stayed firm. There are limits, though. If prices stay high for a year or more, farmers start adjusting — switching to less fertilizer-intensive crops — and government programs can step in to soften the blow faster than the market expects.
On the other side of the ledger, plenty of oil-derived naphtha chemical companies — particularly across Europe and Asia — are simply getting squeezed with no obvious way out. Not every company in a troubled sector finds a way to turn disruption into opportunity.
More than people realize — but the stagflation concerns are genuine and worth acknowledging first.
Inflation jumped from 2.4% CPI in February to 3.3% CPI in March — a meaningful move in a single month. The Federal Reserve is in an uncomfortable spot: raise rates and risk slowing the economy, hold steady and risk letting inflation take hold, or cut rates if higher oil tips growth meaningfully lower and credit starts to crack. None of those options are clean, and that uncertainty puts real pressure on banks — particularly around credit quality and loan books. If consumers and businesses feel squeezed enough, they borrow less and some start missing payments – a definite risk.
But here’s what tends to get lost in that narrative: When markets are turbulent, major banks with strong trading and advisory operations actually tend to do quite well — more client hedging activity, wider transaction margins, elevated trading volumes. And in the first quarter of 2026, community and regional banks outperformed their larger peers on net interest margins and loan growth. How the consumer holds up over the next few quarters will be the key variable to watch.
M&A deal flow has been limited year-to-date at both the large-cap and community bank level, but we expect activity to pick up meaningfully as the macro outlook stabilizes. Larger banks are well positioned to capitalize on advisory and underwriting opportunities when the pipeline opens. For community and regional players, consolidation remains a compelling strategic option — franchise values are healthy, and a more settled rate environment should give boards the confidence to act.
True. Pain at the pump doesn’t stay at the pump. Higher energy costs feed into grocery bills, shipping charges, and utility bills — the cumulative effect is consumers quietly pulling back on anything that isn’t truly essential.
For companies selling non-essentials — electronics, clothing, and the like — the math is simple: less money in people’s pockets means fewer discretionary purchases. People delay buying a new TV, skip the seasonal wardrobe refresh. Companies like Sony Group and UK clothing retailer Next plc feel this fairly directly. Non-essential spending tends to bounce back quickly once energy prices normalize — it’s a timing issue more than a structural one.
Grocery and food companies are steadier, but defensive doesn’t mean immune. People still have to eat, but they reach for the store brand instead of the name brand and become more selective overall. Grocer Ahold Delhaize actually benefits from that shift, focusing on offering “great value” through high-quality private-label brands (such as Food Lion’s own brands) and personalized, digital loyalty programs. Branded food companies like Tyson Foods have less luck in the aisle (costs and prices tend to rise together); many may falter, but the successful ones will survive on efficient operations and strong supply chains.
While it might seem counterintuitive for a growth-cyclical sector, IT tends to hold up reasonably well when oil prices rise. Hardware and semiconductor companies have limited direct exposure to crude, and strong pricing power—especially in AI-driven segments like high-bandwidth memory and semiconductor equipment—helps offset higher input costs. Energy does still feed through indirectly, via electricity costs for fabs and data centers and through broader macro pressures, so the sector is not immune. But relative to more energy-intensive parts of the market, IT is simply less exposed—and that distinction is what tends to support its relative performance during oil spikes. This sector seems immune to the war.
Energy infrastructure is one area that doesn’t get enough attention in this conversation. Businesses like The Williams Companies, Inc. get paid based on how much product flows through their pipelines under long-term contracts — their revenues are largely unaffected by day-to-day oil price swings. That makes them unusually stable in a volatile market. Refiners are in an interesting spot too, with profit margins that tend to widen when supply gets disrupted. Both offer more direct exposure to this environment than the typical defensive stocks investors usually reach for.
Fuel is one of the biggest costs for any airline, and LATAM Airlines had a difficult quarter because of it. When fuel prices spike, the market tends to sell all airline stocks equally. But that broad reaction has created a genuine opportunity in the carriers that are actually better positioned to handle it – namely the low-cost airlines. We bought Ryanair Ltd. during the selloff. The company has locked in roughly 80% of its near-term fuel costs at lower prices. When people are watching their budgets, they don’t stop traveling — they fly cheaper, and that’s exactly the traveler Ryanair is built for. Carriers with real scale also tend to come out of downturns with bigger market shares than they went in with — weaker competitors don’t always make it through intact (i.e. Spirit Airlines) and Wizz Air is struggling as well. There’s still risk: if oil stays high and those locked-in fuel prices eventually reset, even Ryanair will feel the pressure. But the current setup is compelling.
The obvious trades from this cycle are largely played out. Energy and defense are well understood and well owned. What remains requires more digging — companies the market has misjudged, where selloffs have been driven by sector-wide sentiment rather than fundamentals, where cost pressures are real but manageable, and where underlying demand is holding up better than the headlines suggest. Think Yara or Ryanair.
The narrative is already shifting. Oil prices pulled back in early May on ceasefire signals around the Strait of Hormuz — a reminder of how quickly the story can change. If tensions continue to ease, the companies hit hardest on sentiment — particularly in consumer and transport — are likely to bounce first. But not everything resets overnight, and as value investors, we’d rather be early and cheap than late and crowded.
The real question is no longer where oil goes from here. It’s about identifying which businesses were temporarily disrupted versus which have structurally improved their position — and whether the market has caught up to that distinction yet. In most cases, it hasn’t. That gap is where we’re working.
This Q&A was conducted with Samuel Horn, Assistant Portfolio Manager, in May 2026. Mr. Horn initially joined the firm in 2012 and re-joined Polaris in August 2016 as an Analyst, after completing his MBA from the MIT Sloan School of Management. He was promoted to Senior Investment Analyst in January 2021, and became an LLC member in January 2022. He continues to work with an experienced research team, performing fundamental analysis of potential investment opportunities.
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