Live Markets: Oil, not defence, is the Iran trade - for now

Saab AB

08/07/2026 13:38

Adds blog post
STOXX 600 down 1.2%
Oil jumps sharply
Trump declares Iran MOU 'over'
Nasdaq futures lower
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OIL, NOT DEFENCE, IS THE IRAN TRADE - FOR NOW
European defence stocks fell on Wednesday as fresh Iran tensions sparked a broader risk-off move across markets and sent crude prices sharply higher.
The sector's weakness may be possibly linked to concerns over supply disruptions and rising energy costs, while investors rotate into oil and gas stocks .SXEP, seen as the most immediate beneficiaries of a Middle East escalation.
But while the market is focusing on near-term headwinds, analysts say more regional turmoil could ultimately strengthen the case for defence contractors.
Mediobanca Research argues that the lack of progress in U.S.-Iran negotiations points to a prolonged period of instability rather than a quick return to normality.
"This may increasingly suggest that the current security environment becomes the new normal until there is either regime change in Iran or a fundamental shift in U.S. foreign policy," write Mediobanca analysts Alessandro Pozzi and Marco Vitale.
Crucially for the sector, the Italian bank believes the strategic implications are supportive.
"In our view, this further reinforces the need for stronger air defence capabilities and sustained military spending across the Middle East, supporting medium-term order intake for defence contractors with exposure to the region."
Wednesday's losses come after a strong recovery that pushed the European aerospace and defence index .SXPARO more than 20% above the one-year lows hit in mid-May.
Defence plays including BAE BAES.L, Rheinmetall RHMG.DE, Leonardo LDOF.MI, Thales TCFP.PA and Saab SAABb.ST are down around 2-4%, while oil majors Shell SHEL.L, BP BP.L, TotalEnergies TTEF.PA and Eni ENI.MI gain 1-2.5%. 

(Danilo Masoni)
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