Oil approaching $140. Private equity has a problem.

Article April 22, 2026

Meet the
Authors:

Rupesh Shah

Senior Managing Director

John Shepherd

Senior Managing Director

Scott Pinsonnault

Senior Managing Director

Meet the
Authors:

Rupesh Shah

Senior Managing Director

John Shepherd

Senior Managing Director

Scott Pinsonnault

Senior Managing Director

BOTTOM LINE UPFRONT

Three compounding supply disruptions have structurally repriced energy markets. PE sponsors have eight levers to pull. The firms pulling them now will have options at exit. The ones waiting will not.

The energy market has been structurally repriced, and the effects are already running through portfolio company financials.

Brent crude approaching $140 a barrel is a stress test in motion. The Strait of Hormuz crisis has effectively taken roughly 20% of global oil and LNG flows offline. The IEA is calling it the largest supply disruption in the history of the global oil market. Add the Red Sea crisis still choking Suez Canal traffic, the tariff shock from earlier in 2025, and an OPEC+ supply increase that landed at exactly the wrong moment, and the picture is clear: three compounding disruptions hitting an operating environment that PE was not fully underwritten for.

This is not a backdrop. It is a balance sheet event.

Sponsors who are treating this as a macro backdrop to monitor are leaving value on the table. Energy is simultaneously a margin line, a covenant trigger, and a working capital problem. For PE-backed businesses operating with tight capital structures, those three things compound quickly.

Consider what is already in motion. Energy represents 20 to 40% of production costs across most industrial sectors and up to 40% for logistics-heavy businesses. Interest coverage ratios for PE-backed companies fell to 2.9x in 2025, down from 6.0x the prior year, with roughly 20% of middle-market companies already below 1.0x. At those levels, even modest EBITDA erosion moves the needle on covenant headroom fast. PE-backed bankruptcies have hit record levels in recent years. The window to act proactively is open, and it will not stay open.

Eight levers. Pull them now.

The sponsors getting ahead of this are treating energy as an operating discipline embedded in portfolio governance, not a line item reviewed at quarter end.

Here is what that looks like in practice.

1. Hedge energy exposure.

Hedging 70 to 90% of near-term energy consumption can reduce earnings volatility by 20 to 25% at the EBITDA margin level. Integration matters; misalignment between procurement and pricing functions can erode value, in some cases costing companies tens of millions annually.

2. Lock in procurement costs.

Long-term fixed-price contracts and corporate PPAs can provide cost visibility below current market levels without requiring infrastructure investment.

3. Drive operational energy efficiency.

Targeted investments including LED retrofits delivering 40 to 75% savings and IoT-enabled monitoring cutting consumption by 10 to 30% deliver fast payback and permanent cost reduction.

4. Implement pass-through mechanisms.

Well-structured fuel surcharges and energy escalation clauses can shift meaningful cost risk to customers, provided the contract design is transparent and symmetrical.

5. Diversify and nearshore supply chains.

Reducing dependency on long, volatile supply routes lowers both cost exposure and the working capital drag that comes from carrying larger inventory buffers against uncertain sourcing.

6. Build advanced scenario models.

Energy sensitivity should be embedded in every board discussion, including downside scenarios reflecting price increases well in excess of 100%, a range now being realized as Brent approaches $140 and analysts consider scenarios above $200.

7. Fortify the capital structure.

Proactively managing rate exposure and engaging lenders before covenant pressure builds creates meaningful flexibility. Sponsors who move early retain options that disappear quickly as conditions tighten.

8. Create portfolio-wide visibility.

Centralized dashboards tracking energy exposure, recovery mechanisms, and covenant headroom enable faster, more informed decisions across the portfolio.

Start with the assets most exposed, not the ones easiest to address.

Triage matters here. Not every asset needs the same level of intervention. Focus first on companies with high energy intensity, limited pricing power, constrained covenant headroom, and a near-term exit window.

Plan for $70 Brent too.

One more dynamic worth building into the models. The expectation of oversupply that defined the earlier part of 2025 has not disappeared; it has been deferred. When supply normalizes, prices could correct sharply. Sponsors are managing genuine two-way risk, which means scenario planning needs to account for $70 Brent as seriously as $150. Both are live possibilities inside a single hold period.

The firms that act now will have options at exit.

The ones that wait will be explaining why they didn’t.

Over $1 trillion in dry powder is sitting globally, much of it aging. Sponsors face simultaneous pressure to deploy capital and to protect existing positions. The firms that treat oil price volatility as a manageable driver of portfolio value, embedding it into underwriting, operational planning, and governance, will be better positioned at exit than those who engage only when the pressure becomes unavoidable.

Accordion works with PE sponsors and portfolio company leadership teams on scenario modeling, working capital optimization, supply chain strategy, and capital structure resilience, purpose-built for the speed and accountability that PE demands. If energy exposure is creating pressure across your portfolio, now is the right time to start the conversation.

FAQ

How exposed are PE-backed companies to energy cost increases?

Energy represents 20 to 40% of production costs across most industrial sectors and up to 40% for logistics-heavy businesses. Interest coverage ratios for PE-backed companies fell to 2.9x in 2025, down from 6.0x the prior year, with roughly 20% of middle-market companies already below 1.0x. At those levels, even a modest EBITDA decline can trigger covenant pressure quickly.

What are the most effective levers PE sponsors can pull right now?

Eight operational and financial levers are available. Hedging 70 to 90% of near-term energy consumption can reduce EBITDA margin volatility by 20 to 25%. Long-term fixed-price contracts and corporate PPAs provide cost visibility below current market rates. Targeted efficiency investments — including LED retrofits and IoT-enabled monitoring — deliver 10 to 75% consumption savings with fast payback. On the revenue side, well-structured fuel surcharges and energy escalation clauses can shift meaningful cost risk to customers. Supply chain nearshoring reduces exposure to volatile long-haul routes. Proactive lender engagement and rate management protect covenant headroom before pressure builds.

How should sponsors prioritize which portfolio companies to address first?

Triage should focus on companies with the highest energy intensity, the least pricing power, the tightest covenant headroom, and a near-term exit window. Those are the assets where energy exposure creates the most concentrated value-at-risk and where early intervention has the highest return.

Feeling pressure from energy costs? Let's talk.

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