Markets in wartime: Sectors to buy and avoid as the US-Iran conflict escalates

As geopolitical tensions between the United States and Iran intensify, market experts are advising investors to reposition portfolios toward sectors that historically outperform during periods of conflict, while avoiding industries most vulnerable to rising commodity costs.

According to a recent note titled Time and again: Geopolitical events are boon for investors by ICICI Direct, escalating tensions in the Middle East could have major ripple effects across global commodity markets and equities, particularly if crude oil supply routes face disruption.

The brokerage said that the most critical risk lies around the Strait of Hormuz, a key global shipping corridor through which nearly one-fifth of the world’s oil supply passes. Any disruption to this route could trigger sharp spikes in oil prices and add volatility to global markets.

Energy, defence and metals seen as key beneficiaries

Analysts say sectors linked to commodities and national security spending tend to perform well during wartime environments.

Energy producers are likely to benefit first. Higher crude prices typically boost profitability for upstream oil and gas companies as global supply concerns push prices upward.

Defence manufacturers are another key beneficiary, as geopolitical tensions generally lead to higher military spending by governments worldwide. Investors often rotate into defence stocks during such periods in anticipation of stronger order books.

Commodity-linked sectors such as metals and mining may also gain from wartime inflationary pressures, as geopolitical uncertainty tends to push up prices of raw materials.

In addition, export-oriented industries such as IT services and pharmaceuticals could find some support if geopolitical tensions weaken emerging market currencies, improving their global competitiveness.

Fuel-sensitive sectors face pressure

On the flip side, analysts caution that industries heavily dependent on crude oil derivatives may face earnings pressure if energy prices surge.

Sectors such as aviation, paints, chemicals and oil marketing companies could see margins squeezed due to higher input costs.

For airlines in particular, jet fuel typically accounts for a large share of operating costs, making profitability highly sensitive to fluctuations in crude prices.

Similarly, chemical and paint manufacturers rely heavily on petroleum-base feedstocks, meaning sustained oil price spikes could raise production costs.

Oil remains the key market variable

Market strategists say the trajectory of crude oil will remain the most critical factor shaping investment strategies if the conflict escalates.

A prolonged disruption to Middle Eastern energy flows could fuel global inflation, weaken consumer demand and trigger volatility across equities. Conversely, if tensions ease quickly, commodity prices may stabilise, reducing pressure on fuel-sensitive sectors.

For now, analysts recommend investors remain selective and maintain exposure to sectors that have historically shown resilience during geopolitical shocks, while staying cautious on industries whose fortunes are closely tied to volatile energy costs.