WASHINGTON, July 9 — The defence sector’s recent rally, triggered by escalating US-Iran tensions in June 2024, continues to offer a telling snapshot of how geopolitical risk is priced into the market. On June 20 of that year, the major prime contractors all moved higher, with Lockheed Martin shares climbing 2.5 per cent to $480, Northrop Grumman rising 1.8 per cent to $510, and Raytheon Technologies adding 2.1 per cent to $120. The S&P 500 defence sector index as a whole gained 2.2 per cent on the day.
The trigger was straightforward: heightened friction between Washington and Tehran. For investors, the calculus is equally simple.
When the probability of a kinetic engagement rises, the case for holding defence names strengthens.
The oil dimension
But the story does not stop at the defence primes. The same tensions that lifted Lockheed and Northrop also sent oil prices surging. West Texas Intermediate crude jumped 3 per cent to $85 per barrel, while Brent crude settled at $89 per barrel.
The mechanism is well understood: any disruption to shipping through the Strait of Hormuz — the narrow chokepoint through which roughly a fifth of the world’s petroleum passes — immediately tightens global supply. The US Energy Information Administration reported that domestic oil production stood at 13.2 million barrels per day in May 2024, near record levels.
That is a significant buffer, but not enough to insulate the American economy entirely from a supply shock in the Gulf. The US Strategic Petroleum Reserve, meanwhile, held 375 million barrels as of June 2024, down sharply from 638 million barrels in 2020.
The Strait of Hormuz scenario
Analysts at Goldman Sachs have projected that oil could reach $100 per barrel if the Strait of Hormuz is disrupted. That is not a hypothetical exercise. Iran has repeatedly threatened to close the strait in response to pressure on its nuclear programme or its oil exports.
A blockade, even a brief one, would send crude prices spiking and force the US and its allies to decide whether to use naval force to keep the waterway open. For the defence industry, the interplay is almost elegant.
Higher oil prices increase the cost of military operations, but they also increase the strategic imperative to secure supply lines. And any conflict that threatens the strait is, by definition, a conflict that requires more ships, more aircraft, more missiles, and more munitions. The primes benefit on both sides of the ledger.
The technical reality, as ever, is that the defence sector’s fortunes are tied to the permanence of global instability. The June 2024 rally was a reminder that, for Lockheed, Northrop, and Raytheon, the premium on security only rises when the world looks less secure.
The detail that matters is that the SPR is now at its lowest level in decades, leaving the US with less strategic cushion than it had when the last Gulf crisis erupted. What to watch next is whether the Strait of Hormuz remains open. If it does, the oil spike will fade and defence stocks will drift.
If it does not, the sector will have a much longer runway — and the White House will have a much harder problem.
