Middle East War Update and The Stocks Set to Gain

The Israel-Iran conflict has sharply escalated into open warfare, with Israel’s June 13 strikes on Iranian nuclear and military facilities triggering an unprecedented wave of missile and drone retaliation—over 1,400 projectiles launched in under a week. The cost, both human and economic, is mounting rapidly; each Iron Dome interception reportedly costs around US$50,000, underscoring the strain of sustained defence. While Washington denies direct involvement, last-minute arms transfers and President Trump’s public approval of Israel’s actions hint at tacit support, reflecting a strategy of calculated ambiguity. At the heart of the confrontation lies Iran’s nuclear programme, which has increasingly defied international oversight and pushed Israel to act before Tehran’s capabilities become unassailable. With cyber warfare now in play and diplomatic efforts faltering, the risk of regional spillover—and wider economic disruption—continues to grow. The Iran-Israeli conflict is casting a long shadow over global energy markets, with fears mounting that the Strait of Hormuz—the world’s most critical oil artery—could become a flashpoint. This narrow corridor, through which nearly a third of seaborne oil moves daily, remains irreplaceable despite regional efforts to diversify export routes. Any credible threat to its security is enough to jolt markets, with oil prices seen jumping US$10 to US$30 a barrel in short order. On June 13, that anxiety was on full display: benchmark crude prices surged, and shares in fuel-heavy sectors like airlines and cruise lines slumped. While actual supply disruptions remain limited for now, the stakes are high. A prolonged conflict risks pushing Brent crude back toward 2008 highs, raising the spectre of stagflation just as central banks try to steady fragile economies. With U.S. military action against Iran increasingly priced in, the Strait’s stability has become a central variable in the global economic outlook. Headline Index Stays Calm, But Sector Performance Reveals Underlying Volatility Amidst Middle East Tensions The escalating conflict in the Middle East has yet to trigger a dramatic move in Australia’s headline index, with the ASX 200 largely holding its ground. But beneath the surface, sector-level shifts tell a more nuanced story. Energy stocks have gained ground, supported by rising global oil prices, while fuel-dependent industries—such as industrials and consumer discretionary—have come under pressure. Gold, Copper and Defensive Stocks Reflect a Mixed Investor Mood Driven by Geopolitical Risk and Demand Concerns Commodities have delivered a mixed signal. Gold initially rallied on safe-haven flows, only to see some of those gains reverse as investors locked in profits. Australian gold miners have felt that shift. Copper producers, on the other hand, have fallen, with demand worries outweighing any geopolitical uplift. Meanwhile, defensive sectors such as Utilities and Consumer Staples have quietly outperformed. In a market dominated by uncertainty, investors appear to be rotating towards names with predictable cash flows, showing a preference for safety without fully retreating from risk. Australian Stocks Benefiting from Oil Price Spikes The recent surge in oil prices has created a favourable environment for Australian energy producers, directly boosting their earnings and free cash flow due to stable production costs. Woodside Energy Group Ltd (ASX: WDS) Source: WDS, weekly chart (2025) Woodside Energy, Australia’s largest oil and gas producer, has emerged as a clear beneficiary of the recent surge in oil prices following geopolitical tensions in the Middle East. The company’s shares jumped 6.5% on the day of the initial Israeli strikes, reflecting market optimism. With FY25 production guidance of 186–196 million barrels of oil equivalent and unit costs expected between $8.50 and $9.20 per barrel, Woodside stands to gain significantly from any sustained oil price strength, given its favourable cost structure. Operationally, the company delivered a solid first quarter for FY25, producing 49.1 million barrels of oil equivalent—up 9% from the prior year—driven largely by the Sangomar field ramp-up, which added 78,000 barrels per day with near-perfect reliability. Revenue rose 13% to $3.3 billion, supported by higher volumes and a growing share of LNG sales linked to gas hub prices rather than oil indices. This diversification has allowed Woodside to capture a 23% premium on a quarter of its LNG volumes, enhancing resilience amid price volatility. Following a 30% drop in its share price over the past year, the stock now appears more attractively valued. Woodside’s focus on high-margin, long-life assets and a diversified customer base, combined with disciplined cost management, underpins its robust positioning in a complex and shifting energy landscape. Santos Ltd (ASX: STO) Source: STO, weekly chart (2025) Santos, one of Australia’s major energy producers, has seen its shares respond favourably to the recent rise in oil prices. The company’s FY25 production forecast of 90 to 97 million barrels of oil equivalent, coupled with a unit cost range of $7.00 to $7.50 per barrel, positions it well to benefit from a higher price environment. This cost discipline means that Santos stands to convert geopolitical uncertainty into domestic market gains through improved earnings and free cash flow. A notable development has been the non-binding takeover bid valuing Santos at around A$30 billion (US$18.7 billion), led by a Middle Eastern consortium including Abu Dhabi’s National Oil Company (ADNOC) and private equity firm Carlyle. The offer, priced at $8.89 per share, represents a substantial premium over recent trading levels, highlighting how company-specific events can eclipse broader market trends. The board’s decision to permit due diligence reflects confidence in the long-term value of Santos’s assets, which remain attractive regardless of short-term oil price volatility. The latest quarterly update showed a modest production increase, underpinned by Western Australian operations, and reaffirmed a free cash flow breakeven oil price comfortably below $35 per barrel, providing a buffer against downside risk. Beach Energy Ltd (ASX: BPT) Source: BPT, weekly chart (2025) Beach Energy has seen its shares rise 4.5% following the recent surge in oil prices. Its Q3 FY25 report showed production of 4.9 million barrels of oil equivalent and sales revenue of $552 million, supported by a realised oil price of $133 per barrel, up 8% quarter-on-quarter, and a gas and ethane price of $11.0 per gigajoule, which rose 4%. This strong correlation with commodity prices positions Beach Energy well in the current market environment. The company’s financial position has improved significantly, with net gearing falling to 8% in Q3 from 10% the previous quarter, supported by healthy free cash flow and liquidity of $708 million. This allowed for a $68 million interim dividend payment in March. Beach Energy’s half-year results reflected a robust recovery, with underlying net profit after tax rising 37% to $237 million and operating cash flow increasing 88%, driven by higher production and LNG swap cargoes from Waitsia. Its free cash flow breakeven oil price remains on track at approximately US$30 per barrel for FY25, providing solid downside protection and profit leverage. Production guidance for FY25 is expected near the midpoint of 18.5 to 20.5 million barrels, with capital expenditure forecast at the lower end of the $700 to $800 million range. Gold Stocks Benefiting from Geopolitical Instability Gold has historically served as a safe-haven asset during times of geopolitical uncertainty and market volatility. The current Iran-Israeli conflict, alongside broader US-China tensions and stalled Russia-Ukraine talks, has reinforced gold's role, driving its price above $3,400 per ounce. Genesis Minerals Limited (ASX: GMD) Source: GMD, weekly chart (2025) Genesis Minerals has been a strong performer in the gold sector, with its shares leading gains on the ASX 200 following a 6.5% rise alongside climbing gold prices. The company’s Q3 FY25 results showed cash holdings increasing by A$111 million to A$348 million, supported by a record quarterly gold production of nearly 60,000 ounces. An all-in sustaining cost of A$2,323 per ounce highlights the efficiency of its operations. The company remains on track to meet its upgraded FY25 guidance of 190,000 to 210,000 ounces at an AISC between A$2,200 and A$2,400 per ounce. Gold sales in Q1 FY25 generated A$266.4 million in revenue at an average realised price of A$4,496 per ounce, contributing to an unaudited net profit after tax of A$68-72 million for the quarter. This solid performance and strong cash flow position Genesis to capitalise on elevated gold prices amid ongoing geopolitical uncertainty. Genesis is advancing its “ASPIRE 400” strategy to accelerate production growth, supported by a 12% increase in group reserves to 3.7 million ounces. This reflects a proactive approach to maximising value in the favourable gold environment. Regis Resources Limited (ASX: RRL) Source: RRL, weekly chart (2025) Regis Resources has gained from rising gold demand, with shares advancing 5% as investors sought refuge in the metal. The company reported Q3 FY25 production of 89,700 ounces at an all-in sustaining cost of $2,538 per ounce. Its Duketon operations contributed 58,100 ounces, while Tropicana, where Regis holds a 30% stake, added 31,600 ounces. Gold sales for the quarter reached 81,000 ounces, generating $372 million in revenue at an average realised price of approximately US$3,130 per ounce. A significant financial achievement was the early repayment of a $300 million syndicated loan facility, settled in full well before its June 2025 maturity using cash reserves. This move reflects strong financial discipline and has strengthened the balance sheet, reducing risk and increasing flexibility. Half-year results for FY25 showed a turnaround from a net loss the previous year to an underlying net profit after tax of $88 million, alongside a net cash position of $229 million. Sales revenue rose 41% to $777 million, while operating cash flow increased 176%, supported by a 51% rise in average realised gold prices. For FY25, Regis Resources expects total gold production between 350,000 and 380,000 ounces, with all-in sustaining costs projected between $2,440 and $2,740 per ounce. The company has also secured a $300 million revolving credit facility, contributing liquidity and supporting its growth initiatives. This financial strength, combined with steady safe-haven demand for gold, positions Regis Resources as a robust player in the sector, capable of delivering strong shareholder returns. Other Benefiting Sectors and Stocks Rare earth elements (REEs) have gained significant geopolitical importance due to their critical role in advanced technologies, including missile guidance systems, and China's dominance in their supply. Geopolitical tensions between China and Western nations have led to concerns about supply chain vulnerabilities and export restrictions, elevating the strategic value of non-Chinese rare earth producers. Lynas Rare Earths Ltd (ASX: LYC) Source: LYC, weekly chart (2025) Lynas Rare Earths, the largest supplier of separated rare earths outside China, is central to the global effort to diversify supply chains and reduce reliance on Chinese sources. Its role in strategic mineral supply chains is increasingly vital amid geopolitical moves to secure essential resources. The company’s upcoming addition of Dysprosium and Terbium — heavy rare earth elements that are difficult to source outside China — enhances its strategic standing. In the first half of FY25, Lynas reported growth in neodymium-praseodymium (NdPr) production, sales volumes, and revenue compared to the prior year. NdPr sales volumes rose by 23%, despite continued pressure on prices. The company recorded a net profit after tax of $5.9 million and increased sales revenue to $254.3 million. Lynas maintained a strong cash balance of $308.3 million while investing $267 million in major projects, including commissioning the first stage of the Mt Weld expansion and ramping up production at its Kalgoorlie Rare Earths Processing Facility. The company remains on schedule to complete its new processing plant by the end of FY25, supporting a target annual production of 10.5 tonnes. Its commitment to expanding capacity, improving efficiency and sustainability positions Lynas to benefit from recovering market conditions and ongoing demand for diversified rare earth supplies driven by global geopolitical competition. Investment by Western powers in non-Chinese sources, such as Greenland’s Tanbreez project, highlights the sustained demand for companies like Lynas. DroneShield (ASX: DRO) Source: DRO, weekly chart (2025) DroneShield (ASX: DRO) is a leading Australian counter-drone technology company that specializes in solutions for drone detection and disablement. The increasing proliferation of drones, coupled with evolving global security threats, has created a significant demand for countermeasures, positioning DroneShield at the forefront of a rapidly expanding market. We project the counter-drone market to grow at a compound annual growth rate (CAGR) of over 20% through 2030, driven by increased investment from defence, law enforcement, and critical infrastructure sectors. The company's stock has seen a remarkable surge, rising almost 120% year-to-date and over 730% in the past 12 months, reaching new all-time highs. This strong performance is underpinned by significant contract wins and robust revenue growth. In Q1 FY 2024, revenues soared 900% year-over-year to $16.4 million, led by a $5.7 million repeat order from a US Government customer and a key procurement framework agreement with the NATO Support and Procurement Agency (NSPA). DroneShield also secured a $4.7 million order from a "non-government Swiss international customer" for its vehicle-based counter-drone systems, further diversifying its customer base. DroneShield appears to be a robust investment for those interested in the technology and security sectors, given its strong market position, technological innovation, and strategic partnerships. Analysts are overwhelmingly bullish, with Bell Potter forecasting $97 million in sales and $24.4 million in earnings for FY24. While the company faces potential risks such as technological competition and regulatory changes, we believe its ability to secure consistent government contracts and expand into international markets, particularly in the US and Europe, positions it for continued growth. The company's strong financial performance and expanding product offerings, combined with its strategic capital raises, instil confidence in its long-term potential within a burgeoning sector. Austal (ASX: ASB) Source: ASB, weekly chart (2025) Austal (ASX: ASB) is an Australian-based global shipbuilding company and defence prime contractor. It specializes in the design, construction, and support of defence and commercial vessels, making it a key player in naval defence capabilities. The company's operations span globally, contributing to its robust market position in the defence industry, which we consider a significant advantage. Austal's stock has demonstrated significant upward momentum, increasing by 8.14% in the past week, 27.60% in the past month, and a substantial 168.91% over the last year. This performance reflects strong investor confidence, partly driven by geopolitical tensions that underscore the importance of naval defence. Analysts maintain a positive outlook, with an average one-year price target of $4.52 AUD, ranging from $4.13 to $4.99. The company's net income for the last half-year reached $25.11 million AUD, a significant increase from the previous period, indicating strong financial recovery and operational efficiency. The ongoing global need for robust naval capabilities, amplified by current geopolitical developments, positions Austal for continued growth. The company's recent acquisition of land to facilitate steel ship construction indicates strategic expansion and a commitment to meeting future defence demands. Furthermore, Hanwha's interest in increasing its stake in Austal to 19.9% from 9.9% suggests strong strategic interest from a major global defence player, which we view as a positive indicator. Austal's established position as a defence prime contractor and its strategic initiatives to enhance its shipbuilding capabilities make it a compelling investment for those seeking exposure to the growing global defence sector. Electro Optic Systems (ASX: EOS) Source: EOS, weekly chart (2025) Electro Optic Systems (ASX: EOS) is a Canberra-based technology company focused on developing products and services for the global defence and space domains. Its core product range includes high-end, broadband radio transceivers for satellite communications, laser satellite tracking systems, and electro-optic fire control systems. EOS has been actively working to stabilize its position and has made significant progress over the past year, securing record revenues, cash receipts, and operating cash flow, which we find encouraging. The company's shares have surged almost 100% over the past 12 months, reflecting growing market recognition of its capabilities and strategic positioning. EOS recently secured a €35 million (AUD 61.87 million) contract to provide remote weapons systems, with delivery scheduled for this year and next, believed to be for a NATO member supporting Ukraine. This contract is viewed as strategically significant by analysts, underscoring the relevance of EOS's technology in current global conflicts. Analysts anticipate the company to reach breakeven in 2025, before generating positive profits of AUD 6.4 million in 2026, with an ambitious average annual growth rate of 94% projected for its path to profitability. EOS's strong financial performance, strategic contract wins, and focus on expanding its product offering in the anti-drone market position it favourably in the current geopolitical climate. The company's ability to secure new business globally, including in Europe, North America, the Middle East, and Asia, is diversifying its customer base and reducing reliance on single large customers. With its low debt obligation (debt making up 22% of equity), EOS is well-capitalized to pursue its growth initiatives and capitalize on the buoyant market demand for its defence and space technologies, making it an attractive prospect for investors interested in the defence technology sector.