The investment community watching the Strait of Hormuz is treating a possible armistice, freer tanker traffic and pressure from Washington as if they could settle the oil market’s bigger question.

They may calm spot prices, but they cannot manufacture barrels that haven’t been funded. That is the distinction Rick Rule, a veteran natural-resource investor, made in a recent interview.

A durable Gulf settlement could send oil lower, he said, but today’s disruption offers "a foretaste" of 2029 and 2030, when he expects a supply shortage "that can’t be ended by an armistice."

The reason, in his view, is capital. Rule’s research shows that the global oil and gas industry (including state-owned producers) has underinvested in sustaining capital by more than $1 billion a day.

The Depletion Treadmill and a $95 Floor

That constraint is especially acute in US shale. Tight-oil wells deliver much of their net present value in the first 18 months, Rule said. Without timely recompletions and fresh drilling, output falls faster than it would from conventional reservoirs.

"Our spending cycle needs to continue very, very, very high to maintain our current levels of production," he said.

According to Forbes, Enverus Intelligence Research puts the average breakeven for new US shale wells at $70 a barrel of West Texas Intermediate, above recent spot prices. Its marginal breakeven estimate rises to $95 by 2035 as the best Permian acreage gives way to more speculative Tier-2 and Tier-3 drilling locations.

"As core shale oil inventory in the US depletes, the industry is entering a new era of higher costs and more complex development," Enverus director Alex Ljubojevic said. North America’s share of incremental global consumption growth will drop below 50% in the next decade, from more than 100% in the last one, he added.

The Dividend Trap

The capital shortage is partly a capital management choice. If investors reward dividends and buybacks, it encourages producers to prefer distributing cash over replacing reserves. In Rule’s view, it is cannibalization.

Therefore, a company can look shareholder-friendly while quietly reducing the productive base that supports future distributions.

High financing costs and assumptions that oil demand is nearing a permanent peak just compound the issues. According to Rule, those narratives have restricted long-dated development capital even as production systems require continual replenishment.

Positioning for the Shift

Rule’s preference is for operators that resist that liquidation logic. Exxon Mobil (NYSE:XOM) is his simplest example. It’s an integrated major with a long record of capital allocation and a Guyana discovery large enough to "move the dial" at its scale.

Devon Energy’s (NYSE:DVN) combination with Coterra, he said, creates interlocking leases that can support longer laterals, while EQT’s (NYSE:EQT) northeastern gas infrastructure provides leverage to a future tightening in gas markets.

Canada, in his opinion, is lucrative but offers a separate valuation trade. 

Canadian Natural Resources (NYSE:CNQ) and Tourmaline (OTC:TRMLF) have long-life assets but trade at discounts reflecting political risk. Meanwhile, Freehold Royalties (OTC:FRHLF) offers a royalty income that rises with volumes and prices without directly absorbing drilling inflation or sustaining-capital demands.