By Alison Durkee
Donald Trump's attacks on Iran have sparked uncertainty worldwide, but the prospect of a long-term war could prove lucrative for a range of industries, with companies such as Lockheed Martin, Raytheon, Boeing, Exxon and other companies in the defense and energy industries aspiring to be the big winners.
The military operations of the Americans and Israelis are unknown how long they will last. The stock market was volatile in the early days of the war. Defense industry companies that have contracts with the U.S. military, such as Lockheed Martin, Raytheon, and Palantir, are the most direct beneficiaries of the conflict, with the industry's stock prices mostly trending upward in the past week, despite Tuesday's negative respite.
As the conflict in the Middle East affects oil and gas production and transportation in the region, oil giants such as Exxon and Chevron are also expected to benefit from oil rallies, while the energy sector is also making gains in the U.S. stock market.
On the other hand, higher oil prices combined with a climate of uncertainty are expected to weigh on the travel industry, luxury goods and transport giants such as FedEx and UPS.
According to the United States Central Command, or CENTCOM, over 20 weapons systems are used in Iran. Most of them have been built by Lockheed Martin, RTX and its subsidiary Raytheon, but also by Boeing, Northrop Grumman, L3Harris Technologies and General Atomics Aeronautical. Shares of these companies have made gains in recent days, although analysts note that Boeing is showing a moderate rise because a smaller part of its activity is linked to military contracts. Arizona-based SpektreWorks is behind the "LUCAS" drones, which the US military says have been used in lower-cost attacks, while advanced Tomahawk missiles, which are also reportedly used in the conflict in the region, are manufactured by Raytheon. THAADs, a different type of missile used to intercept enemy fire, are produced by Lockheed Martin. These companies and others in the drone and missile sector will likely be the winners of the US attacks, with Catalyst Funds investment director David Burns pointing out: "Companies active in the construction of missile defense systems are the ones that will benefit the most from the increased demand."
The stock of software company Palantir has also recorded gains, as it provides services to the military. Analysts estimate that European defense companies will also benefit, with JP Morgan analysts indicating that BAE Systems, Renk, Leonardo DRS and QinetiQ are the companies with the greatest connection to the American market.
Oil and gas prices are rallying, as the passage of tankers in the Strait of Hormuz, from where about 20% of the world's oil is transported, has been restricted. Higher prices have benefited U.S. oil companies: shares of giants such as Exxon, Chevron and Occidental Petroleum strengthened immediately after the first attacks by Americans and Israelis, although they have experienced more volatility in recent days due to uncertainty about the conflict and its impact on the industry. Burns mentioned that smaller-cap oil companies such as Talos Energy can also benefit from higher energy prices and the continuation of the war. While higher gas prices directly benefited oil producers, analysts predict that any prolonged conflict could also be beneficial for the renewable energy sector, as alternatives, such as solar and wind power, could be sought to compensate for higher energy prices and to avoid volatility in oil and gas prices. "Renewables offer a lower level of risk compared to fossil fuel imports, and industry stocks may strengthen," said Pavel Molchanov, CEO of investment bank Raymond James.
Major transportation companies such as FedEx, UPS and DHL may be hit by a long-running conflict, and this is reflected in their share prices, as rising oil prices and possible longer routes — due to the closure of airspace in the Middle East — may lead to higher fuel prices, according to Bloomberg. Companies that manage containers could benefit from the problems in transporting goods. Ships are currently being redirected away from Suez and the Strait of Hormuz, the Wall Street Journal notes, which forces containers to travel longer distances and allows companies to charge higher prices for longer journeys. As a result, shares of companies such as Danish shipping company Maersk and Germany's Hapag-Lloyd have made gains since the outbreak of the war, although the prolonged war may cause them problems. Maersk and other companies have suspended operations in Middle Eastern ports due to concerns about the safety of their ships, have closed their offices in the region and are urging ships in the Middle East to "take refuge".
How long will the conflict in Iran last? The duration of the war could affect the course of companies, with gains in the defense and energy sectors potentially short-lived if the conflict ends soon or if new measures are taken to address high oil prices. Analysts told AFP that any move by the Trump administration to mitigate the impact of the war on the oil market — such as a promise to escort (for security reasons) ships passing through the Strait of Hormuz or tap into emergency oil reserves — could limit oil companies' profits. In the meantime, renewable energy companies will benefit more if the conflict is prolonged and oil prices remain high. As for defense industry companies, analyst Byron Callan told Air & Space Forces magazine that while the war is favorable for the industry in the short term, the end result depends on the length of the war and whether the U.S. manages to "weaken" Iran. A long-term war means that weapons stockpiles will have to be replenished, which would be good for defense companies, Callan commented, but if the U.S. achieves an immediate and overwhelmingly victorious result against Iran, this development would not be positive for defense companies, since it would "trim" the military's long-term need for new weapons to use in the region. "There are a number of war plans for Iran," which may change depending on the development of the conflict, Callan added.
The travel industry has been hit significantly so far, with shares of major airlines, cruise lines and hotel groups recording losses in recent days, as the crash leads to an increase in fuel costs and reduces holiday bookings in the region. Military operations have led to flight cancellations in the Middle East, while major hotel chains are already counting losses. Among the sectors that could be hit by a long-term war are technology — as investors prefer to invest in companies with lower risk in times of conflict — but also the luxury goods sector. Shares of companies such as LVMH, Burberry and Richemont, owner of the Cartier, Van Cleef and Chloé brands, have fallen in recent days, with analysts pointing out that these companies have made large investments in the Middle East, while historically luxury goods have performed better in periods of less economic uncertainty, since they are favoured by the climate of "euphoria", when there is "positive consumer confidence and a constructive outlook for the future," according to RBC Capital Markets analysts who spoke to CNBC.
Despite the benefits for some industries, economists generally predict that the war will have a negative economic impact, with Kent Smetters, director of the Penn Wharton Budget Model (PWBM), estimating that the conflict could cause economic losses for the US of between $50 billion and $210 billion.
