Due to the joint American and Israeli strikes on Iran, oil prices have experienced extreme volatility in recent days. As a result, stocks have also seen fairly strong selloffs on expectations of higher global energy prices for the foreseeable future. One of the most interesting questions emerging from this situation, though, is whether and to what extent higher oil prices will impact the AI stocks that have delivered most of the market’s gains for the past few years.
Link Between AI and Oil Prices
Even before the war in Iran began, power demand from AI data centers was beginning to put strains on power generation and exert upward pressure on energy costs. Although crude oil isn’t primarily used for power generation in the US, higher oil prices tend to raise costs across the energy landscape. As a result, the already hefty energy costs of AI are likely to keep rising, putting pressure on the margins of businesses investing in AI infrastructure.
Higher energy input costs could also draw more attention to the questionable economics of data centers, something that was already beginning to weigh on AI stocks before the war began. With rapid depreciation, high operating costs and hardware that becomes obsolete fairly quickly, AI data centers have fairly limited windows of time in which to turn profits. Higher energy costs are only likely to exacerbate this problem. As such, investment in data centers could slow down if energy prices become too high.
The high costs of energy and the potential for reduced data center investment could ripple throughout the AI ecosystem, a fact that has already started showing up in stock prices. TSMC, for example, has sold off by about 6 percent since the war started, a trend that has also affected other fabricators. This suggests that if rising energy prices do start to hit AI stocks, the effects will quickly be passed along to chipmakers and other hardware manufacturers.
It’s also worth taking into account the fact that the surge in oil prices has come at a time when investors were already beginning to show some skepticism on AI. While high valuations and rapidly rising share prices have been the norm among AI stocks for the past few years, early 2026 saw signs of stagnation. As such, a selloff triggered by higher energy prices could also turn into a full-blown correction. Ongoing concerns about the financial position of OpenAI could add further fuel to such a selloff, as the business has massive purchase agreements in place with several other large AI majors and is increasingly being viewed as a major financial risk.
How Interest Rates Could Come Into Play
To a lesser degree, the effects of higher oil prices on interest rates could also have an impact on AI stocks. The market is now pricing in the Fed’s next rate cut in September of this year, significantly later than the July cut that was previously expected. Lower interest rates tend to benefit high-growth stocks, and an extension of higher rates could exert moderate downward pressure on some of the leading AI tech businesses.
It’s also worth mentioning the potentially inflationary effects of higher oil prices. By some projections, inflation could rise to 3 percent by May if oil prices remain elevated. Such a spike in inflation could cause the Fed to further delay rate cuts, putting additional pressure on growth stocks. In order to exert this kind of effect on inflation, though, oil prices would have to stay elevated for multiple months.
Will Oil Prices Stay High?
Of course, a great deal depends on how high oil prices stay and for how long. Oil futures already retreated significantly early on Tuesday, though they regained some of their ground due to conflicting reports about the state of shipping in the Strait of Hormuz. Tuesday also saw the heaviest strikes of the war so far, raising potential worries about further escalation.
Iran has signaled that it is likely to resist American and Israeli demands for surrender. In recent days, Mojtaba Kahmenei was appointed as the country’s Supreme Leader, a choice that’s being widely read as a sign that Iran’s government intends to fight on. Iran has also begun laying mines in the Strait of Hormuz in what could be the start of a broader effort to close shipping in the straits altogether. Given these developments, it’s not yet clear that the end of the war or a normalization of oil shipping in the Middle East is in sight.
Although the situation remains highly volatile, oil prices are expected to eventually plateau around $70 per barrel as higher production elsewhere in the world offsets the disruption of shipping in the Strait of Hormuz. Though well below the triple-digit territory that futures have flirted with in response to the war, this would still represent a major increase from where oil prices began the year. These higher prices could prevail through at least the end of this year, if not into 2027.
Will Higher Oil Prices Hurt AI Stocks?
Although the situation in Iran is still quite uncertain, it seems likely that higher oil prices will remain a feature of the global economy throughout this year. With this being the case and data centers already driving a surge in energy demand, it’s quite probable that AI stocks will see at least some downward pressure from higher oil prices in 2026. The degree of impact, though, will likely depend on how high oil prices go and how long they remain elevated before returning to more normal levels.
Early signs, however, show that the market is still basically enthusiastic about AI businesses. On Tuesday, retail investors flooded back into AI stocks that had been battered by news of the war in Iran. Though good for AI stocks in the short term, this enthusiasm could diminish if energy prices weigh on the costs and margins of AI businesses over a longer period of time.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.