Melt-up in crude prices!
This is currently the most important price chart to monitor: Crude oil.
In just under 8 weeks, the price of oil – the lifeblood of modern industrial economies – has doubled from $60. The catalyst for this massive price jump is the stunning assassination of Iran’s supreme leader. Attacks and counter-attacks soon followed; missiles and drones criss-crossed the Middle East in all directions and shattered essential facilities like oil refineries, desalination plants, and tourist hotspots.
War quickly led to the closure of the Strait of Hormuz. Did you know that 20% of the global oil transit through this narrow sea every day? Its importance is only second to the Strait of Malacca. The moment that the Middle Eastern chokepoint shut down, oil prices spiked.
Without a safe passage, oil super-tankers stood idly by. Without oil deliveries, Gulf countries are losing millions of vital income every day. And in the absence of a safe environment, high-spending tourists aren’t likely to return any time soon. War, in summary, is bad for business.
In other words, President Trump has totally upended the region’s economy and political scene with the unexpected missile hit last month.
Source: EIA (2025)
Investment implications
Many are thus wondering, what now?
Iran remains defiant (and chose another Khamenei as leader); while America’s allies are displeased at the sudden loss of income. The immediate effect which I anticipate is that defence spending is likely to increase across the region.
Gulf countries have been emptying their defence missiles in a bid to take down the Iranian suicide drones. Hundreds (or thousands) were expended to stop those cheap – yet effective – Shahed drones. Critical facilities must be protected at all costs.
Once the fighting subsides, these missiles have to be replenished quickly, at a huge cost. Good for arms manufacturers, not so good for investments.
Saudi Arabia, for example, is already the world’s 7th largest spender on defence last year (see below). The country bought more than $70 billion of weapons, a sum higher than that of France. After the latest Iranian missile shoot-out, Saudi’s spending, along with other Gulf countries, will likely increase in 2026. Upgrades must be done.
US and Israel, too, will need to restore their missile arsenals after disbursing hundreds of missiles over the past ten days. All in all, the next few quarters will see more capital flowing into defence orders.
Source: www.iiss.org (2026)
No wonder those defence stocks are outperforming the general market.
A quick look at the iShares Aerospace & Defence (ITA) shows that the ETF has hardly declined in recent days. In fact, the ETF hit all-time highs last week despite the Gulf crisis. Its relative performance may sustain, given the elevated global geopolitical tensions.
Raytheon (RTX), Northrop (NOC), Lockheed (LMT) and General Dynamics (GD) are all trading near their long-term highs.
With crude fluctuating around $100, the headache for governments is inflation.
In the UK, gilts slumped in the wake of the soaring energy prices (ie, long-term government yields have rebounded sharply). This may bring about two consequences:
- Inflation expectations rising and rate cuts hopes falling – meaning borrowing costs could stay ‘higher for longer’
- Economic uncertainty to rise – which may lead to falling consumer spending and corporate investment
Should the crude price continue to rise, the 10-year gilt yield may even break north of 5% this year (currently only 0.35% away). This downbeat view is creating sustained selling pressure on government bonds.
Source: Yardeni.com
The other effect of the Iran conflict is that global investments from the Gulf region may drop due to the need to rebuild facilities.
One Gulf official has recently commented:
A number of Gulf countries have
begun an internal review to determine whether force majeure clauses can be invoked in current contracts, while also reviewing current and future investment commitments in order to alleviate some of the anticipated economic strain from the current war.
The six Gulf countries hold about $2 trillion in US assets via their sovereign wealth funds. If the Iran conflict prolongs, these US investments may have to be sold to fund the defence of their countries.
Another TACO Trade in the making?
It is precisely this scenario that Trump does not want to see.
Crashing asset prices due to panic selling or divestment is something that Trump wants to avoid. For example, as soon as crude hit $120 yesterday, the President immediately declared the Iran war “very complete” and ‘far ahead of schedule”.
Investors breathed a collective sigh of relief. Crude prices plunged to $85 straightaway. Stocks rebounded.
Like the tariff event last year, when the market seized up, US government policies were rolled back to acceptable levels in order to calm market sentiment. This is classic Trump.
Investors know this. Hence, the Nasdaq 100 Index (ETF: QQQ) barely dropped in recent sessions despite the ongoing furore in the Middle East. They were waiting to see whether the President would halt its military adventure once oil rockets to $120. He did, at least verbally.
Now here is a contrarian thought: Will S&P and Nasdaq hit new all-time highs this month?
Jackson is a core part of the editorial team at GoodMoneyGuide.com.
With over 15 years of industry experience as a financial analyst, he brings a wealth of knowledge and expertise to our content and readers.
Previously, Jackson was the director of Stockcube Research as Head of Investors Intelligence. This pivotal role involved providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Jackson brings a huge amount of expertise in areas as diverse as global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University and has authored over 200 guides for GoodMoneyGuide.com.
