Key insights
- The analysis suggests that a potential shift in US focus towards the Iran War could weaken support for Ukraine, leading to increased investment in the European defense sector. However, current market focus on oil prices and supply chain issues are creating headwinds for defense stocks. The author believes the sector hasn't bottomed yet but is closely monitoring it for potential opportunities, particularly in Europe.
As we know, EUAD and RHM have been strengthened by the Ukraine War, though they seem to have stagnated since mid-2025 due to the perception of a stalemate in the war.
However, with the current trajectory of the Iran War it’s looking increasingly likely to me that the US will be fully occupied in the Middle East and provide even less support to Europe and Ukraine. Plus the oil surge is significantly helping Russia’s war effort. I think it’s not incorrect to say that the US’s start of the Iran War has significantly decreased the chance of a favorable outcome in Ukraine and may lead to escalation losses there as well, as much as I want Ukraine to win.
This is why I bring up the European defense sector. If Ukraine starts losing ground I believe we will see massive investment in European defense, perhaps even stronger than in 2022 due to the potential lack of US support this time.
Currently however the markets are focused on oil vs equities, which has also seen the defense sector take losses across the board. Plus supply chain disruptions for critical military materials like Helium. So I don’t think we’ve hit the bottom for defense yet, but I am keeping an eye on it, especially in Europe.
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