Barclays analysts noted in a research note published Wednesday that energy services companies may face an earnings revision cycle, even as the immediate effects of Middle East disruptions are expected to be modest for the upcoming reporting period.
The bank anticipates the first-quarter 2026 earnings season will reveal relatively minor impacts from the Iran War, despite forecasts for lower revenue and higher costs through June. Barclays emphasized that the larger question is how earnings will evolve once current disruptions subside.
Barclays' research asserts that oil prices are now structurally higher. The note attributes that shift to the disappearance of global overcapacity concerns, the embedding of a geopolitical risk premium, and heightened energy security considerations that act to restrain supply. Management commentary in recent quarters reportedly included indications of upstream spending growth emerging for 2027, and Barclays has incorporated mid-single-digit growth into its forward estimates.
The bank added that upstream spending should accelerate if oil prices remain at these structurally higher levels. At the same time, Barclays cautioned that management teams are unlikely to offer guidance beyond the second quarter because timing remains uncertain and multiple scenarios are still possible.
For positioning into the quarter, Barclays expects the market to favor North American and offshore-focused names while de-emphasizing exposure to the Middle East. The bank identified companies with the most earnings risk tied to Middle East exposure, listing Schlumberger (NYSE:SLB), Baker Hughes (NASDAQ:BKR), Halliburton (NYSE:HAL), Weatherford (NASDAQ:WFRD) and Weatherford International.
Barclays suggested positioning toward North American-levered companies for oil-beta and potential second-half upside should exploration and production companies increase capital spending. The bank also sees the offshore theme gaining from an anticipated 2027 inflection moving earlier and from an acceleration in final investment decisions.
As beneficiaries into the quarter, Barclays highlighted Halliburton, Weatherford, Tenaris (NYSE:TS), Patterson-UTI (NASDAQ:PTEN) and TechnipFMC (NYSE:FTI). Despite these near-term positioning recommendations, the bank warned that a new normal will not be evident for several months, creating difficult trading conditions in the near term.
Overall, Barclays expects oil prices to remain structurally higher and for energy security to become a primary consideration after current disruptions are resolved, which the bank believes would lead to higher sustained upstream spending.
Key points
- Barclays expects Q1 2026 earnings to show only modest effects from the Iran War despite lower revenue and higher costs through June.
- The bank sees structural upward pressure on oil prices driven by reduced overcapacity, a geopolitical risk premium, and energy-security concerns; it has embedded mid-single-digit forward growth for 2027 upstream spending.
- Market positioning should favor North American and offshore-focused energy services names this quarter, while companies with Middle East exposure carry the highest earnings risk.
Risks and uncertainties
- Unclear post-disruption path - Barclays notes that the outlook after current disruptions end remains the more significant question, and a new normal may take months to emerge.
- Management guidance limitations - Firms are unlikely to give guidance beyond the second quarter because of uncertain timing and multiple possible scenarios.
- Near-term trading volatility - Barclays warns of difficult trading conditions in the near term as markets adjust to evolving supply and security considerations.