Do Energy and Defense Stocks Rally During War? The Uncomfortable Truth History Reveals

The Strait of Hormuz: The World's Oil Trigger

The Strait of Hormuz, running between Iran and Oman, carries roughly 20% of the world's daily oil supply through a single narrow waterway. Any threat to that flow—real or perceived—sends oil prices higher almost immediately.

This isn't theory. It's a pattern that has repeated across decades.

Gulf War I: A 3x Spike, Then a Collapse

In August 1990, Iraq invaded Kuwait. Oil prices, sitting at around $17 per barrel before the invasion, surged to over $45 within months. Nearly a threefold increase.

Energy companies surged with it. BP and other major producers posted significant stock price gains as the market priced in higher crude revenues.

But the spike was short-lived.

Once the coalition's victory became clear and supply restoration was on the horizon, prices dropped back to pre-invasion levels almost as fast as they had risen. The moment uncertainty evaporated, so did the premium.

2022 Russia-Ukraine: The Modern Energy Shock

The same pattern played out during the early 2000s Iraq War, but the most dramatic recent case came in 2022.

Russia's invasion of Ukraine sent Brent crude from around $80 per barrel in January 2022 to over $115 by May—one of the most dramatic oil and gas price shocks in modern history.

What happened to energy stocks during that period?

Stock	2022 Return	vs. S&P 500
Exxon	+75%	S&P -20%
Chevron	+50%	S&P -20%

In a year when the S&P 500 fell nearly 20%, energy stocks delivered extraordinary returns driven almost entirely by one factor: the price of oil.

Defense: War's Other Beneficiary

It's not just energy. Every time a major geopolitical conflict involves the United States, defense budgets expand, contracts get signed, weapons systems get ordered, and defense stocks reflect that reality.

After September 11th, Lockheed Martin began a multi-year run that significantly outpaced the broader market. During the 2022 Russia-Ukraine conflict, Lockheed rose over 30% while the rest of the market sold off. Raytheon, General Dynamics—the entire sector surged as NATO allies announced plans to boost defense spending.

The Train Has Already Left

Reading all of this, you might think: "So I should buy energy and defense now."

Look at where prices already are.

Stock	3-Month Gain
Lockheed Martin	+45% (above $670)
Exxon	+30%
Chevron	+27%
Occidental Petroleum	+31%

Substantial gains have already occurred. Whether it was the Gulf War or the Russia-Ukraine conflict, the explosive returns in energy and defense were concentrated in the early shock phase. Entering after the headlines have spread means chasing the tail of the return curve, not riding the wave.

Recall the Gulf War lesson. The profits came when oil moved from $17 to $45. Once coalition victory was assured, prices snapped back. The speed at which uncertainty resolves is always faster than expected.

Great Business + Wrong Price = Bad Investment

None of this means energy and defense are bad sectors. Both contain real, durable businesses that can be excellent long-term investments at the right price.

But the core principle cannot be ignored:

Great business + wrong price = bad investment.

The capital flooding into energy and defense right now—is it genuine conviction in fundamentals, or an emotional reaction to war headlines? Distinguishing between price and value is the entire game of investing.

Lockheed Martin rising 45% in three months means today's buyer pays 45% more than the buyer three months ago. If the underlying business hasn't improved by 45% in that period, the difference is pure premium built on expectation and fear.

History is clear. Energy and defense do rally during geopolitical crises—that part is true. But the bulk of those gains are concentrated early in the event. Jumping in after everyone knows the story means buying the risk history warns about, not the returns history delivered.