Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) shares have already delivered stockholders some smashing gains in 2026.
And both S&P/ASX 200 Index (ASX: XJO) energy stocks are outperforming again today.
In morning trade on Monday, Santos shares are swapping hands for $8.68 apiece, up 1%. Woodside shares are trading for $33.14 each, up 0.9%.
For some context, the ASX 200 is just about flat at this same time.
Taking a step back, the ASX 200 is up a slender 0.2% so far in 2026. That compares to the 41.2% year-to-date gains for Santos stock and the 40.1% gains posted by Woodside.
Atop those capital gains, both ASX 200 energy stocks have paid (or shortly will pay) two dividends this calendar year, making them appealing passive income plays.
Santos shares currently trade on a 3.5% unfranked dividend yield, while Woodside shares trade on a fully-franked 4.9% dividend yield. That equates to a 7% yield grossed up.
Image source: Getty Images
What's been sending the ASX 200 energy stocks flying?
The Aussie oil and gas giants have been clear beneficiaries of surging global oil prices in the wake of the Iran war.
Indeed, on 1 January, Brent crude oil was trading for a mere US$60.85 per barrel. The oil price then topped US$118 per barrel in April, before sinking back to US$72.01 per barrel in July.
But oil has been on the rise again since then, and Brent surged back to US$107.36 per barrel over the weekend as the Middle East conflict heated back up.
That means the vital Strait of Hormuz oil shipping route is unlikely to reopen for normal business anytime soon.
And with Iranian-backed Houthi forces increasing their attacks over the weekend and threatening to block another Red Sea shipping chokepoint, oil supplies could remain restricted for some time.
While that's bad news for inflation and the economy, it could support further gains in Santos and Woodside shares, as well as boost their next round of dividends.
Why Santos and Woodside shares still look like a good buy
Despite their strong outperformance already this year, I think Santos and Woodside shares are well-placed to keep outperforming in the year ahead.
Just how well they perform will depend to a significant extent on global oil prices.
On that front, Commonwealth Bank of Australia (ASX: CBA) head of commodities Vivek Dhar said (quoted by the Australian Financial Review):
US tolerance to delay any peace deal with Iran … rising Chinese imports and lower supply outside the Middle East in 2026 indicate that Brent oil futures may stay above US$100 a barrel for longer than it did in late July.
RBC Capital Markets head of commodity strategy Helima Croft added, "Maritime traffic … is gravely imperilled by the Houthi advances, bringing into focus our high oil price forecast."
Croft noted that the latest attacks had "reduced the efficacy of one of the key oil release valves for the six-month Iran war".
Croft said that if the conflict between the Houthis and Saudi Arabia escalated, it could see the oil price hit US$118 per barrel in 2026 and potentially reach US$130 per barrel in 2027.
At those levels, both ASX 200 energy stocks would see their profit margins grow, likely supporting higher dividends and spurring further increases in the Santos and Woodside share price.
