Investor appetite for truly diversified portfolios amid a backdrop of geopolitical uncertainty and fresh opportunities overseas has prompted higher volumes of interest in the Middle East’s impressive energy landscape.
Geopolitical tensions in the region have often had a profound impact on the energy sector, with oil stocks frequently outperforming the S&P 500.
October 2024 saw crude oil prices record their largest rise in nearly two years, with Brent, the global oil benchmark rallying 8% to settle at $78.05 per barrel.
While Brent prices have since settled, its sharpest price rally since January 2023 underlines the level of opportunity for globally focused energy traders.
Although Brent has dipped more than 34% from its 2022 peak in the wake of Russia’s invasion of Ukraine, its value at the end of Q3 2024 was 14% higher than at the beginning of the decade, indicating the long-term value that oil still has throughout global markets.
With this in mind, it’s understandable that traders would seek to buy Middle Eastern oil stocks in a region that specializes in the energy sector, but how easy is it for US investors to buy into stocks on exchanges like the Saudi Exchange, or Abu Dhabi Securities Exchange?
Investing in the Middle Eastern energy market can be challenging for US investors, but there are a number of options to tap into.
While some could for an extremely direct approach in buying barrels, the investment opportunities available can span a number of different strategies, each containing a number of pros and cons depending on your investment goals.
One popular option is to go for a direct investment by purchasing assets within the oil sector, such as drilling operations or shares in an oil and gas company within the Arabian Peninsula or wider Middle Eastern region.
This approach offers direct exposure to the performance of the sector, meaning that there’s far greater potential for higher yields during an industry upturn. Likewise, many of these companies pay out lucrative dividends that investors can access through direct investment. In the case of the Abu Dhabi National Oil Company, an annual dividend of $700 million or a minimum of 75% of net profits is in place for 2024-2028.
One of the most frictionless ways for US investors to access Middle Eastern energy stocks is by utilizing exchange-traded funds (ETFs).
The great thing about ETFs is that they offer instant portfolio diversification without having to manually pick actual assets to add. There are also plenty of US ETFs that focus specifically on Middle Eastern oil.
Notably, the iShares MSCI Saudi Arabia ETF (KSA) and Franklin Resources Inc. are both traded on the NYSE Arca and provide exposure to leading Saudi Arabian energy stocks like Saudi Aramco.
Alternatively, it’s possible to enter a joint venture or partnership with existing oil companies for access to Middle Eastern markets. However, these arrangements can involve profit-sharing and reduced risk due to diversified responsibilities.
However, if you’re seeking a more long-term position in an overseas oil firm and are willing to conduct due diligence, entering a partnership can be a sustainable approach to investing in Middle Eastern Energy.
So, you’ve discovered a Middle Eastern oil stock that you want to trade. What’s next? Let’s take a look at the Abu Dhabi National Oil Co. For Distribution (ADNOC) as an example.
ADNOC is an operator of retail fuel service stations in the United Arab Emirates, and the company segments also include a series of commercial revenue sources which makes the stock appealing to a number of investors and their respective financial goals.
The stock is accessible for investors via the Abu Dhabi Securities Exchange (ADX), where traders can place orders to buy and sell shares using the exchange’s website or mobile app or via dedicated exchanges.
If you’re wondering how to invest in ADNOC stock via a dedicated exchange, it’s worth exploring your options for compatible trading platforms that offer exposure to stocks listed on the Abu Dhabi Securities Exchange.
As for leading Saudi energy stocks like Saudi Aramco, limits on foreign investor access to the Saudi Exchange can be inhibitive.
For instance, a foreign investor may own no more than 5% of the shares issued in any one company, and no foreign investors can collectively own more than 49% of any listed company’s shares.
This can make buying into small-cap energy stocks more difficult but can be less of a burden when buying into some of Saudi Arabia’s largest energy companies.
If you’re seeking relatively frictionless access to Middle Eastern energy firms, buying a US-listed ETF comprised of leading oil stocks like the iShares MSCI Saudi Arabia ETF (KSA) is likely to be the most effective straightforward approach.
Given that the KSA’s 5-year returns are up a healthy 10%, the fund has plenty to offer for investors seeking long-term exposure to the region’s leading energy stocks.
However, the most suitable approach will invariably depend on your respective investment goals. So it’s important to conduct sufficient research to better understand your options.