Energy in focus as global equity traders brace for Iran impact

(March 2) : Traders braced for a volatile and risk-off open to the week for global stock markets after the US and Israel attacked Iran, with the focus turning to energy and defence companies as potential havens amid expected losses in airlines and other consumer sectors.

The price action in Middle East markets over the weekend hinted at what to expect. Saudi Arabia’s Tadawul All Share Index fell 2.2%, with losses limited by a rally in oil-producing giant Aramco, while Egypt’s main index dropped 2.5%. 

“Equity markets are likely to fully shift to oil prices as a primary driver of price action,” said Michael Kantrowitz, chief investment strategist at Piper Sandler & Co. “Equities will be under pressure until oil prices stop rising.” 

The conflict is the latest catalyst for another surge in oil and gas prices, with some estimating that when trading reopens on Sunday night, oil prices are likely to jump 10%-15%. Strategists expect the drastic military escalation to drive a broad rotation into the classic defensive corners of the market that can be steady amid economic upheavals, such as utilities and healthcare. Meanwhile, riskier growth stocks and economically sensitive groups like industrial and financial stocks could face selling pressure. 

Monday should see “volatility and selling in tech and cyclicals, and the reason for that is that, because of the actions that we’ve seen, there will be a significant risk that rising energy prices penalises growth,” said Matt Gertken, chief geopolitical and US political strategist at BCA Research. “We should globally see defensives and energy outperform.”

As global equity investors assess the fallout of the conflict, here’s a guide to the sectors to watch as trading begins in markets across Asia, Europe and the US.

Brent crude climbed Friday to its highest level since July as traders braced for a conflict, sending US energy stocks to a record. Major energy names are likely to see further big gains, including Exxon Mobil Corp, Chevron Corp, Shell Plc, TotalEnergies SE, Repsol SA, BP Plc, Australia’s Woodside Energy Group Ltd, Hong Kong-listed PetroChina and South Korea’s S-Oil Corp. 

“It’s just a matter of what impact will Iran’s response have on the global oil supply — at least temporarily, and then maybe longer term,” said Rob Thummel, a portfolio manager at Tortoise Capital. Any price spike may be short lived if supplies are not severely disrupted. In one scenario Thummel sees as less likely, a long closure of the Strait of Hormuz could push prices above US$100 per barrel.

Iran has said it doesn’t intend to shut the waterway, which accounts for some 20% of global oil flows, but there are signs that tanker traffic through the chokepoint is halting.

Oil tankers are also set to perform well, Thummel said. On the flip side, higher prices typically pressure the margins of refiners such as Marathon Petroleum Corp. and Valero Energy Corp.

Defense stocks have rallied over the past year as global tensions ratcheted higher, and the new conflict in the Middle East gives traders another reason to pile into the sector. Investors are likely to eye US prime contractors like Lockheed Martin Corp and Northrop Grumman Corp, Europe’s Rheinmetall AG and BAE Systems Plc, South Korea’s Hanwha Systems and Taiwan’s Aerospace Industrial.

“The market will take this as broadly positive for European defence stocks,” MWB Research analyst Jens-Peter Rieck said, though “any move is likely to be driven more by sentiment than by changes to earnings estimates.”

President Donald Trump has already pushed European and Asian allies to spend more on their security, and he’s proposed an increase of some US$500 billion in US military outlays. 

The desire for more military funding may now spread to the Middle East, according to Jefferies analyst Sheila Kahyaoglu. US contractors would capture much of that new business from the region, which already accounts for a chunk of their foreign military sales, she said.

Investors typically turn to safe-haven assets like gold and silver during times of geopolitical uncertainty, a move that drives miners’ stocks higher. Precious metal prices, especially gold and silver — already on a searing rally over the past year — started marching higher in the weeks before the Iran conflict. 

Stocks to watch include Agnico Eagle Mines Ltd, Barrick Mining Corp, and Newmont Corp in North America, Europe’s Fresnillo Plc and Hochschild Mining Plc, and Hong Kong’s Chifeng Jilong Gold Mining Co. The Canadian equity benchmark — S&P/TSX Composite Index — may outperform on Monday given its huge exposure to mining and energy sectors that make up about 38% of the gauge.

Higher oil prices can raise airlines’ fuel costs and squeeze margins, just as the conflict also upends global travel. US airline stocks tumbled the most since April on Friday in anticipation of the conflict. Airlines across the Persian Gulf have extended their suspension of operations, a move that can disrupt the finely-tuned choreography of global aircraft movements.

Investors will be watching stocks including US-listed American Airlines Group Inc and Delta Air Lines Inc, Germany’s Deutsche Lufthansa AG, Singapore Airlines Ltd and Australia’s Qantas Airways Ltd. 

“The immediate impact will be on airline and travel stocks as we see news from closures of airspace over the Middle East, and also potentially cancellations of flights that needed to use the airspace en route to Europe,” said Francis Tan, chief Asia strategist at CA Indosuez Wealth Asset Management.

Each 5% change in Jefferies’ estimate for the price of fuel in 2026 translates to a 5% to 10% impact on Delta’s and United Airlines Holdings Inc’s earnings per share. For American, it represents a 35% impact in either direction, according to analyst Kahyaoglu. However, the North American carriers have “minimal” direct exposure to Middle East travel, she added, with Air Canada the highest at 1.1% of its capacity.

Hotel operators could be hurt by travel disruptions and reduced demand. InterContinental Hotels Group Plc operates more than 100 hotels across the region, and its shares fell 3% in London on Friday. 

The closing of Middle East airspace also threatens the margins of freight carriers such as FedEx Corp, United Parcel Service Inc and DHL Group, as longer transit times would drive up fuel costs, according to Bloomberg Intelligence’s Lee Klaskow. On the other hand, snags in transport through the Red Sea and Suez Canal can allow container shippers such as AP Moller-Maersk A/S to charge more for their services.

Uploaded by Isabelle Francis