Oil Price Hike: 2 Big Dividend Stocks Set to Spike Amid Middle East Tensions

The Middle East's simmering geopolitical tensions—centered on Iran's nuclear program and Israel's military posturing—have injected volatility into global oil markets. With J.P. Morgan warning that a full-scale conflict could spike Brent crude to $120–$130 per barrel, upstream oil producers in India stand to benefit from a potential surge in revenue. Among them, ONGC (Oil and Natural Gas Corporation) and Oil India Ltd. (OIL) emerge as compelling plays for income-focused investors. Both companies exhibit robust dividend yields, cost-efficient operations, and production profiles that amplify their exposure to higher oil prices. This article examines why these stocks could thrive in a geopolitical crisis and why their dividends remain sustainable even amid macroeconomic headwinds.

The Geopolitical Catalyst: Why $120 Oil Is No Longer Unthinkable

J.P. Morgan's base case assumes diplomatic resolution to Iran-Israel-U.S. tensions, keeping oil prices anchored around $60–$65 per barrel through 2025. However, the bank's worst-case scenario—a military clash disrupting the Strait of Hormuz (which handles 20% of global oil flows)—could trigger a $120–$130 price spike. Current prices (~$70) already reflect a partial premium for this risk, but if geopolitical instability escalates, these stocks could surge.

For upstream firms like ONGC and OIL, every dollar increase in oil prices translates to ₹1,000–₹1,500 crore in incremental annual revenue. With their low operating costs and high production leverage, these companies are poised to amplify returns for shareholders.

ONGC: A Low-Cost Giant with Hidden Profit Leverage

ONGC, India's largest crude oil producer, reported ₹137,846 crore in FY24 revenue, directly tied to global crude prices. While its Q4 2024-25 net profit dipped 35% due to ₹4,173 crore in exploratory write-offs, its ₹1.25 per-share dividend (0.49% yield) remains sustainable if oil prices rise.

• Cost Structure: ONGC's operating costs are obscured by exploration write-offs, but its crude production rose 0.9% to 18.56 million metric tonnes in FY24. With a focus on drilling 578 wells in FY24—the most in 35 years—it is positioning itself for future output growth.
• Revenue Sensitivity: At $120 oil, ONGC's revenue could jump ~40% from FY24 levels, boosting its ability to cover exploration costs and sustain dividends.

Oil India Ltd.: Higher Dividends, Record Production, and Strategic Flexibility

Oil India Ltd. offers a stronger dividend yield (2.84% as of May 2025) and record production metrics. Despite a 21% Q4 FY25 profit decline (to ₹1,591 crore), its full-year net profit rose 10% to ₹6,114 crore, driven by 2.95% crude oil production growth to 3.458 million metric tonnes and 2.2% gas output expansion.

• Cost Efficiency: Oil India's operating costs per barrel are ~$7.01, far below the $78.09 average crude realization in FY25. This leaves ample room for profit margins to expand if prices climb.
• Capital Allocation: A 123% surge in capex to ₹8,467 crore signals confidence in long-term production growth. Its dividend policy—₹21 annualized per share (including ₹1.50 final dividend)—prioritizes shareholder returns while reinvesting in exploration.

Macro Tailwinds and Risks to Consider

Upside Drivers:
1. Geopolitical Premium: Middle East tensions could push prices beyond J.P. Morgan's worst-case scenario.
2. U.S. Policy: The U.S. seeks to keep oil prices low to curb inflation, but a supply shock would override this.
3. Inflationary Relief: Lower oil prices reduce global inflation by 1.5% annually, but geopolitical risks could delay this outcome.

Downside Risks:
1. Base Case Outcomes: If diplomacy prevails, oil may drop to $50–$60, pressuring profits.
2. Exploration Costs: ONGC's write-offs highlight the risks of over-investment in unproven reserves.

Investment Thesis: Buy for Dividends, Hold for Price Volatility

Both ONGC and Oil India are must-buy stocks for income investors due to:
- High Revenue Leverage: Every $10 oil rise adds ~₹500 crore to their quarterly revenue.
- Dividend Resilience: Oil India's 2.84% yield is more compelling, while ONGC's stability stems from state backing.
- Production Growth: Both companies are expanding output, with Oil India hitting record highs in FY25.

Actionable Advice:
- Buy Oil India for yield and growth.
- Hold ONGC for its scale and geopolitical play.
- Avoid if J.P. Morgan's base case materializes (prices below $65).

Conclusion: Geopolitical Risk = Opportunity for Income Investors

The Middle East's instability has created a high-stakes game for oil prices—and for investors in ONGC and Oil India. With their low-cost structures and dividend discipline, these stocks are well-positioned to capitalize on any supply disruption. Even if tensions ease, their production growth and cost control make them solid long-term holdings. For income seekers, the $120 oil scenario isn't just a risk—it's a potential windfall.

Disclosure: This analysis assumes no personal stake in the mentioned stocks. Always conduct independent research before investing.