Most people don’t benefit from wars or, certainly, from the prospect of broader regional conflicts. But a rare few do, notably the executives of companies that manufacture weapons. After Hamas militants began attacking southern Israel on October 7—and Israel promptly began another, even more brutal assault on the Gaza Strip—the value of stocks in Lockheed Martin and Northrop Grumman surged.
That makes sense. Conflicts, particularly those involving U.S. allies, feed demand for the things that weapons manufacturers make—tactical missiles, fighter aircraft, artillery, etc. Analysts surveyed by the business press were relatively muted about short-term prospects of a rally in defense stocks, although some were optimistic in the longer run.
“While the most recent tensions in the Middle East aren’t likely to drive estimate revisions in the near term,” Citi analyst Jason Gursky told Barrons, “we do expect industry revenue to accelerate in 2024 and 2025 as higher spending bills passed over the past several years begin to make their way through the income statements of our coverage companies.” The Israel-Hamas war could be a “positive catalyst” for the sector, another article concluded.
Very similar dynamics are true, however, for fossil fuel companies. The price of Shell stocks have hit record highs, buoyed by the prospect that the war’s expansion could disrupt Middle East oil production and trade flows.
The defense sector is downstream of U.S. policy in obvious ways. Governments buy the products that arms manufacturers sell, and the Department of Defense—with its ever-expanding budget—buys a lot of them. As Treasury Secretary Janet Yellen said yesterday, there is no shortage of U.S. public funds available to support a steady flow of weapons to both Ukraine and Israel. Beyond sending over even more of its own supplies, the Pentagon is already putting pressure on defense contractors to expedite the delivery of pending Israeli orders.
Energy has a no less abstract relationship to U.S. foreign policy. Compared to most other major oil-producing countries—where governments have some amount of say over production decisions and even prices—the U.S. has relatively limited control over how much and how fast American oil and gas companies drill. That doesn’t mean it can’t use oil as a carrot and stick, though, opening and closing markets so as to suit foreign policy objectives.
The war in Ukraine was a major reason why U.S. oil majors raked in record profits last year. Russia produces about one-tenth of the world’s crude oil and has been a major supplier of gas to Europe; Western-led sanctions on Russia post-invasion opened up new markets for both oil and gas producers to sell more expensive fuels. Executives were hailed as patriots and protectors of global order.
This week, lawmakers are pushing more restrictions with potential upsides for the industry. U.S. intelligence still shows no signs that Iran, which has historically backed Hamas, was involved in planning the group’s attacks on southern Israel. That hasn’t stopped a growing bipartisan fervor to draw Iran into a broader regional conflict by tightening sanctions on its oil supply. On Monday night, 110 members of Congress—including 60 Democrats—sent Biden a letter saying he should go so far as to block Iran’s sale of oil to China, its biggest customer.
To its credit, the White House has so far resisted this kind of escalation. It has, however, said it will refreeze $6 billion in Iranian oil revenue it had agreed to release as part of a prisoner swap last month, following pressure from right-wingers who falsely argued that Iran funneled that money to Hamas to carry out its October 7 incursion. The funds had never been accessed and could only have been directed toward humanitarian aid, not government coffers.
With flows of Iranian oil potentially up in the air, it was fortunate timing, then, for the United States to have reached a deal with Venezuela on Monday to ease crushing sanctions on the country’s oil sector in exchange for President Nicolás Maduro allowing a “competitive, internationally monitored presidential election next year,” per The Washington Post.
For the U.S, the stakes of petro diplomacy in general are low. If the White House excludes big producers from certain markets, gas prices here might go up a bit. But oil is still extraordinarily affordable by global standards. Booming U.S. production means we’re also more insulated from such fluctuations. U.S.-based fossil fuel corporations would naturally be thrilled to pick up the slack left by producers who find themselves on the wrong side of Washington. For countries largely dependent on oil revenue, though, energy sector sanctions can be catastrophic. Venezuela is in the midst of a multiyear humanitarian crisis spurred on by cratered oil revenues, which has driven many Venezuelans to come to the U.S. In Iran, U.S.-imposed sanctions fueled a two-year recession.
Members of Congress are free to benefit from these international conflicts through stock trades or campaign contributions. New Jersey Democratic Congressman Josh Gottheimer—who serves on the House Permanent Select Committee on Intelligence—had the good fortune to snap up as much as $15,000 worth of Northrop Grumman stock at the end of last month. He’s been one of the main ringleaders behind calls for Biden to tighten sanctions on Iran, and in a closed-door meeting last week appeared to suggest that all Muslims were “guilty” of Hamas’s attacks, The Intercept reported. (Gottheimer’s office has denied the report. Politico reported differing accounts about whether he was referring to Muslims.)*
For the time being, there’s probably not much to be done about the fact that some companies see dollar signs in rising death tolls. Politicians in the U.S. without much to lose—or with something to gain—seem content to watch as the lines representing casualties, stocks, and emissions go up.
* This article has been updated to include additional context about the Gottheimer incident.