Key Defensive Sectors Spike on Middle East War

The events of the past week breaking out as a fully declared war between Israel and Iran are hugely unsettling, not knowing how this highly fluid situation plays out. For openers, the proxy wars involving Hezbollah, Hamas and the Houthis against Israel have been relatively contained to days, weeks and in the case of Gaza, months. The new war between the two nations has the look and feel of a longer timeline shaping up.

This new engagement with Iran over what Israel and its allies deem an “immediate operational necessity” to neutralize Iran’s advancing nuclear weapons program, with Prime Minister Benjamin Netanyahu claiming Iran was nearing the “point of no return” in its nuclearization efforts. Hence the pre-emptive strike on June 13, dubbed “Rising Lion,” with the goal of preventing Iran from establishing its nuclear arsenal.

No political scientist can possibly model a plausible outcome at this time, with Iran vowing to target assets of the United States and nations that show support for Israel. Leave no doubt, this is a fanatical Islamic leadership that has taken the Iranian population hostage. It is widely understood that Iran’s leadership, especially figures within the Islamic Revolutionary Guard Corps (IRGC) and the Supreme Leader’s circle, often projects a hardline, ideological stance, while the general population is far more diverse in its beliefs, values and aspirations.

Netanyahu also framed the strike as a message to the Iranian people, encouraging them to rise against what he called an “oppressive regime.” This suggests a secondary goal of weakening the Islamic Revolutionary Guard Corps (IRGC), which plays a leading role in maintaining the regime’s power. As of early 2025, approximately 64% of Iran’s population is under the age of 35, a strikingly youthful demographic.

Could Iran’s populous be on the cusp of its own “Liberation Day”? Probably so, if the U.S. gets fully involved. And from the lessons learned from protracted wars in Afghanistan and Vietnam, the majority of Americans have no appetite for any future “forever wars” with horribly chaotic exits that cost hundreds of billions of dollars in taxpayer dollars to fund. If the full weight of the U.S. military is levied in coordination with Israel to destroy Iran’s nuclear program and their energy infrastructure, this war will likely end much sooner than many predict.

To this point, Israel’s strike on the world’s largest gas field and other energy infrastructure as part of a two-day assault reveals the next phase of where Israel’s battle plan lies. It was reported on Saturday that an Israeli drone struck Iran’s South Pars Gas Field, which is shared with Qatar, where it is known as the North Dome Gas Field. The attack was said to have targeted Phase 14 refineries of the Iranian section. The Iranian Petroleum Ministry also issued a statement Saturday confirming strikes against the South Pars Oil Field and the Fajr Jam Gas Refining Company.

The narrow Strait of Hormuz waterway is Iran’s main artery for oil exports. Just 33 kilometers wide at its tightest point, it is the only sea route out of the Persian Gulf. Roughly 20% of the world’s oil passes through it, including most of Iran’s 2+ million barrels per day that accounts for 90% of Iran’s total oil production. Cutting off Iran’s ability to export its oil also adds a new element of geopolitical risk to the situation. Any threat by Iran to cut off access to the Strait of Hormuz would not only choke off revenue that accounts for around 19% of Iran’s GDP, but also provoke a military response from the U.S. and its allies.

It is by definition a hot mess coming into the new week. In reaction to last weeks and current events shaping the Israeli Iranian war, gold and oil prices are trading higher, as are shares of gold, gold mining, crude-related energy and aerospace defense stocks and ETFs are under bullish accumulation. Ironically, the U.S. dollar and U.S. Treasuries with yields seven years and out further sold off on the last week in what looks to be a bearish response to the likely passage of the “One Big Beautiful Bill” that by most independent experts argue the bill will add between $2.4 – 4.0 trillion to the deficit — Moody’s carrying the highest estimate.

The dollar has historically been a go-to asset when there is a flight to safety. Even as last week’s inflation data came in better-than-forecast, with the Treasury auctions seeing firm demand and a strong bid-to-cover ratio, the dollar failed to respond and is set to test the October 2024 low.

The charts of gold and gold miners have been moving up strongly well in front of the Middle East crisis, reflecting rising concerns over the soaring federal debt that is about to top $37 trillion. Although the topic seems to be reported ad nauseum, it and high yields on long-dated Treasuries remain the number one concern of fund managers — not the Middle East.

Charts of iShares U.S. Aerospace & Defense ETF (ITA) have surged 20% in the past two months reflecting rising business conditions for the military infrastructure complex. And the Energy Select Sector SPDR ETF (XLE), which broke down badly in early April, gained 7.3% in the past seven days triggered by the news of the U.S. embassy in Iraq being evacuated before the attack by Israel.

It appears as if no Arab nations are coming to the defense of Iran militarily. Saudi Arabia, the United Arab Emirates (UAE), Jordan and Qatar have condemned the attack diplomatically. Their motivation is more of a desire for regional stability than an alliance with Iran. A couple of things come to mind when weighing out the probability of what is to come. First, U.S. energy independence is vital. Business conditions for the defense industry are strengthening. And by all means, hold your gold and gold stocks.