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Apr 23, 2026

Insights From ETFs: Industries That Benefit If the Iran War Lasts Longer Than Expected

by Michael Huynh

War Time is Back……

The Iran-Israel conflict is a geopolitical story that has once again become front and center of global news. The conflict has been around for years and has only re-escalated recently, as President Trump announced war with Iran in late February, with the U.S. and Israel launching large-scale strikes targeting Iranian military assets and top leadership. The Iran war has continued to escalate, which once again reminds investors that the global energy supply chain remains fragile and how interconnected the world really is.

Recent geopolitical tensions have pushed oil prices significantly higher, with crude prices trading around $100 and becoming highly volatile on any news. Sustained high oil prices usually mean a higher risk of inflation that can’t be easily solved.

Though wars are not a favourable outcome for civilization, nor a result that investors should try to anticipate or speculate on, on the other hand, investors should be aware of this geopolitical risk and remain open to various scenarios, as we live in a world where anything could happen. Understanding this, investors can protect and build a resilient portfolio that could do well or even benefit if the worst-case scenario happens. In fact, various sectors could be direct beneficiaries of political instability. We only discuss the top three industries that we think could benefit most if tensions continue to escalate and the likelihood of a war increases. One thing investors need to pay attention to is that if the Iran war turns out to be short-lived, these moves will reverse quickly.

1. Energy

The Middle East possesses abundant oil resources, and any oil supply shock could significantly push up oil prices in the near term. In addition, Iran has effectively blocked the Strait of Hormuz, one of the worldís busiest oil shipping channels, since the U.S. and Israel attacked the country, which further exaggerates the industry supply shock, putting even more pressure on global oil prices.

With that said, high prices would tend to benefit the North American oil & gas industry due to its attractive, low-cost asset base. In addition, the current setup in the energy sector is currently one of the most attractive risk/reward profiles for investors in years for a few reasons:

  • Thanks to breakthroughs in oil drilling techniques, this has allowed oil companies to access previously untapped reserves, helping them generate record cash flow with the same dollars of capital invested.
  • Due to ESG trends and political pressure, oil companies are not incentivized to invest more in drilling. In addition, some funds’ mandates do not allow ownership of oil companies, these oil names have become relatively cheap in terms of valuation multiples compared to the previous cycle, making it enticing for these companies to increase dividends and buybacks rather than investing in operations.

For these reasons, the oil industry has now become a lower-risk cash cow with increasing capital returns. We remain optimistic about a favourable outcome for the energy sector over the next three years.

iShares S&P/TSX Capped Energy Index ETF (XEG)

iShares S&P/TSX Capped Energy Index ETF (XEG)ís purpose is to seek a balance between long-term capital appreciation and solid dividend yield through a diversified portfolio of high-quality Canadian oil companies. XEG is a well-established ETF with an AUM of $1.4 billion and charges an expense ratio of 0.60%. In terms of valuation, as a group, XEG has a P/E ratio of 17.4 times and a twelve-month trailing yield of 2.8%.

The ETF’s portfolio currently has 26 holdings but is quite concentrated toward the top holdings, including:

  • Suncor Energy (SU) – 26.9%
  • Canadian Natural Resources (CNQ) – 23.7%
  • Cenovus Energy (CVE) – 12.4%
  • Imperial Oil (IMO) – 6.8%

Most of the names are well-established oil players that have been around for decades and own some of the most important energy assets in Canada. XEG’s portfolio of companies, in general, has a decent track record of generating healthy cash flow, with healthy capital returns through dividend growth and share repurchases over the years.

2. Defense

War tends to increase global defense spending across countries. Historically, defense budgets rise not only during conflicts but remain elevated for some time. It is largely because defense spending is usually in the form of multi-year government contracts with guaranteed demand no matter what happens at the macroeconomic level. Therefore, the U.S. aerospace and defense sector could be a direct beneficiary of this, given its dominant position in the global defense industry, which includes some of the largest players like Lockheed Martin (LMT), General Dynamics (GD), etc.

Defense— Invesco Aerospace & Defense (PPA)

The Invesco Aerospace & Defense (PPA) provides investors with exposure to U.S. companies that are involved in manufacturing operations related to defense, homeland security, and aerospace. PPA is a well-established ETF with an AUM of $8.1 billion and a MER of 0.58%. On average, PPAís portfolio has a Forward P/E of 33x and Return on Equity (ROE) of 24%.

Some of the top holdings include:

  • Boeing (BA) – 8.2%
  • RTX Corp (RTX) – 7.8%
  • Lockheed Martin (LMT) – 7.6%
  • GE Aerospace (GE) – 7.5%

The annualized performance of the ETF since its inception in 2005 has been quite impressive, with an annualized return of around 13.6%.

3. Other commodities

Inflation that is driven by war usually doesn’t just stop at oil and gas, but also spreads pressure to other types of commodities beyond oil such as agricultural goods (fertilizers), industrial inputs (plastics), and other metals. This is because disruptions to logistics can have a ripple effect across supply chains, affecting the costs of various agricultural and manufacturing inputs globally.

iShares MSCI Agriculture Producers ETF (VEGI)

The iShares MSCI Agriculture Producers ETF (VEGI) was created to track the performance of global equities of companies engaging in the agricultural business. VEGI is a small fund with an AUM of $167 million and a MER of 0.39%. On average, VEGIís portfolio has a trailing P/E of 21x and a trailing twelve-month yield of 1.93%.

Some of the top holdings include:

  • Deere (DE) – 26.3%
  • Corteva (CTVA) – 10.3%
  • Nutrien – 6.5%
  • Archer Daniels Midland – 6.3%

The annualized performance of the ETF since its inception in 2012 has been acceptable, but not great, with an average annualized return of around 5.2%.

4. Gold

Gold is perceived to be a “safe haven” for investors in case of macro uncertainties such as war, inflation, and other unexpected shocks. This is especially true if a war occurs, as governments would likely need to raise money by issuing bonds to fund spending, which could increase inflation and dilute the value of currencies.

With that said, given the tremendous run in gold prices recently, we would not be too aggressive in expecting another bull run in the near term, though gold could still act as a stabilizing asset.

Gold - BMO Equal Weight Global Gold ETF (ZGD)

ZGD was launched in 2012, with around $368 million in AUM invested in 40 gold mining companies. The fund strategy is to own global securities in the gold industry on an equal-weight basis.

Some of the top holdings include:

  • Royal Gold – 4.3%
  • Perpetua Resources – 3.0%
  • Seabridge Gold – 3.0%
  • NovaGold Resources – 2.9%

Geographically, ZGD’s largest allocations are Canada (77%) and the U.S. (12%). The fund carries a MER of 0.6% and currently offers an annual distribution of 0.19%.