Energy and Defense Investments Forecasted to Yield in Next 12-18 Months Amid Middle East Conflict, Analysts Say

Energy and defence-related investments are predicted to yield positive returns in the next 12-18 months as tensions in the Middle East continue to rise, according to analysts. BCA Research suggests that the war between Israel and Hamas is likely to expand beyond Gaza’s borders, leading to a significant oil shock. The firm estimates a 45% probability of the conflict involving Hezbollah and other militant groups in Lebanon and Syria. As a result, oil prices are expected to skyrocket, especially if Iran becomes directly involved. In addition to oil, the defence sector is also expected to outperform due to increased spending by the US and Europe. However, experts advise investors to view these sectors relative to other cyclical equities. Despite the ongoing conflict, market impacts and oil prices have been moderate so far. Large investors have been reducing their long-term investments in oil due to reduced demand caused by a slowing global economy. However, investors who anticipate an escalation in the Middle East conflict have been betting on higher oil prices. Analysts predict a potential rise of $3-4 in oil prices if the war remains confined to its current borders. However, if Iran becomes directly involved, prices may jump by $10. The worst-case scenario would involve a full-scale war between major powers, which could wipe out almost $1tn from the global GDP and push oil prices above $150. The ongoing crisis in the Middle East differs from previous ones due to Iran’s nuclear breakout capacity, which adds an additional layer of danger and uncertainty. BCA Research also suggests that the US economy may face a recession in the next 12-18 months, which would have global implications. Rising geopolitical risks often lead to an increase in the price of gold, as it is considered a safe haven asset. The US dollar, Japanese yen, Swiss Franc, and US Treasury yields are also safe options in times of crisis.