The hidden investment consequences of the Iran war

Markets recoiled when the US entered Iran, but the lasting impact may not show up in headline data. For long-term investors, the real shifts are emerging across defence, energy and critical minerals.

In the first two months of 2026, markets followed the playbook. Developed ex-US and emerging market equities were outperforming with a strong global growth outlook and a weakening US dollar.

Gold was trading above US$5000 an ounce for the first time while US indices were treading water on AI jitters.

Then, on the last day in February, the US invaded Iran and began a war that remains ongoing today.

What Trump may have hoped would be a swift operation, toppling the existing leadership and spurring protesters to install a new government, has instead become his trickiest geopolitical entanglement yet.

Equity markets pared their early year gains to be trading down across the world over March, which have more recently rebounded on hopes of a resolution.

The short-term threat is the hit to global growth and inflationary pressure from higher oil prices.

Given the recency of the shock, its impact will only show up in hard economic data with a lag.

Suffice it to say, the longer the war runs, the greater the risk of global recession.

Our base case assumption remains a timely de-escalation without a severe shock to the global economy.

But in any case, it may be the longer-term implications that matter most for investors, long after any resolution in Iran.

Re-thinking portfolio satellites in a fracturing world

Portfolio satellites are used by investors alongside their core allocations to achieve specific goals. More than ever, investors should be considering using these satellites as hedges to geopolitical events.

Russia's invasion of Ukraine accelerated defence spending and European energy diversification.

The Iran conflict is now doing the same for global energy self-sufficiency while further fracturing the US security umbrella and embedding geopolitics as a structural driver of asset prices, rather than an episodic risk to be faded.

For investors, that argues the case for allocations to select exposures in portfolios going forward to help reduce portfolio volatility through a potentially prolonged period of geopolitical tension and global order reshuffling. These include:

Defence contractors

Global defence stocks have been among the best performing since the start of Trump's second presidential term.

In April of 2026 the US proposed a US$1.5 trillion defence budget for FY27, the largest in history and a 50% increase on FY26.

Across the Atlantic, Europe's rearmament is accelerating.

EU defence budgets have nearly doubled from €218 billion in 2021 to a projected €392 billion in 2025, marking the first year all EU-NATO members have hit the 2% of GDP threshold.

To unlock additional fiscal room, 17 member states have activated the EU's national escape clause, permitting defence spending above Stability and Growth Pact limits through 2028.

Germany alone has committed to €162 billion by 2029.

The direction of travel is clear, and defence contractors globally are set to be structural beneficiaries and a potential hedge to geopolitical threats that can cause broader equity market disruption.

Given the breadth of potential beneficiaries, investors can seek to gain diversified exposure to the global defence sector through an ETF, like Betashares Global Defence.

Uranium and energy security

Russia's invasion of Ukraine and the subsequent scramble to wean Europe off Russian oil and gas, thrust energy security to the top of the policy agenda.

The Iran conflict has now re-ignited energy self-sufficiency concerns globally.

As governments reassess baseload power and seek to reduce dependence on hostile suppliers, nuclear energy has re-emerged as a cornerstone of the solution.

As of the most recent COP (the United Nations annual climate change conference), 33 countries, including the US, France, UK, Japan, South Korea, Canada and the UAE, now back the pledge to triple global nuclear capacity by 2050.

With nuclear increasingly recognised as essential for energy independence, decarbonisation and AI-driven electricity demand, the uranium supply chain is entering a structural deficit that favours producers in allied nations.

Given the breadth of the uranium supply chain, spanning mining, exploration, development and production of uranium, modern nuclear energy, or companies that hold physical uranium or uranium royalties, diversified exposure, through an ETF like Betashares Global Uranium ETF, can provide efficient access to the theme.

Critical minerals

Critical minerals, inputs essential for AI data centres, EVs, renewable energy and defence technology, are at the intersection of future technologies and geopolitics.

China controls over 60% of global refined critical mineral supply and 90% of rare-earth magnets.

In response, Western allies are moving decisively: in February, ministers from 54 countries discussed a US proposal to reduce dependence on Chinese supply, while the EU, Japan, Mexico and the US agreed to create price support mechanisms and capital backing for critical mineral projects.

Both the US and Australia have established strategic mineral reserves, and the latest US defence budget dramatically expands investment in domestic critical mineral supply chains.

Selected producers from allied nations, Australia, Canada, Peru and Chile, are well-positioned as key beneficiaries of this government-backed push for supply chain resilience.

With supply chain resilience now a policy priority across allied nations, the opportunity spans the entire critical minerals ecosystem, from miners and processors in Australia, Canada and the Americas, to the companies supplying the inputs that make EVs, data centres and defence systems possible.

The Betashares Energy Transition Metals ETF is designed to capture that breadth, rather than making a bet on individual winners in what remains a complex and evolving structural shift.

The events of early 2026 have reinforced that geopolitics is no longer an episodic risk but a structural force reshaping economies, supply chains and capital flows.

Defence rearmament, energy self-sufficiency and critical mineral realignment are policy-backed, capital-intensive and multi-decade in nature.

For investors with a long-term horizon, maintaining diversified growth exposures to these themes is not simply a hedge against disruption, but a considered response to where structural capital is flowing today and, increasingly, where it may flow tomorrow.

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