Shell (LSE:SHEL) shares have been outpacing the UK stock market by quite a large margin so far in 2026.
With the Middle Eastern oil & gas supply chain massively disrupted by the US-Iran conflict, fossil fuel prices have marched to multi-year highs, enabling diversified oil & gas producers like Shell to capitalise on their enormous operating leverage and rake in chunky profits.
Yet with news of a temporary ceasefire, Shell shares dropped sharply last Wednesday as investors began locking in their profits.
While it was certainly a relief to see a move towards de-escalation and peace, it’s important to recognise that the war has only been paused at this stage. And with peace negotiations on Sunday ending without an agreement, a return to hostilities could have significant implications for Shell and its share price.
Let’s breakdown some scenarios and estimate roughly where the Shell share price could end up over the next 12 months.
Scenario 1: the war rages on
If peace negotiations between the US and Iran breakdown and the conflict resumes, high oil & gas prices are likely inevitable in the short term. In fact, analysts at Bank of America have projected that the price of Brent crude could reach as high as $130 per barrel if Gulf disruptions persist into the second half of 2026.
That would pave the way for significant margin expansion for Shell. After all, the cost of producing one barrel of oil is mostly fixed.
However, with LNG production facilities in Qatar, Shell’s production volumes would also suffer, offsetting some of the profits. It also puts some of the company’s production assets in the potential cross hairs of the Iranian military, which, if targeted, would take years to repair at a very high cost.
Combined, the average consensus among experts in this scenario points towards a Shell share price of around 4,000p-4,500p. If accurate, that means a £5,000 investment today could be worth £5,850-£6,580 by this time next year.
Scenario 2: a peace agreement’s reached
If peace negotiations are successful, then oil & gas production across the Gulf states will begin to restart alongside repairs to infrastructure. However, fossil fuel prices won’t suddenly drop back to pre-war prices.
Bringing production back online is a gradual process, as is repairing damaged energy infrastructure. As such, a production normalisation across the remainder of 2026 will likely result in a non-linear fall in oil & gas prices, with current estimates projecting the price of Brent crude falling to around $70 per barrel 12 months from now.
At this price point, Shell’s recent earnings would compress significantly, likely dragging the shares back down towards pre-war valuation levels of around 2,900p, potentially crushing a £5,000 investment to £4,240.
The bottom line
Shell’s in a complex situation, which makes it difficult to predict which way its shares could move in the near-term. Its robust balance sheet does provide some handy resilience to lower oil & gas prices. But even in a higher price environment, the loss of production volumes presents a significant challenge.
Personally, I find this uncertainty in the least bit tempting. So I’m in no hurry to start snapping up shares today. But it’s still a business I’m watching closely.
