3 Best Defense ETFs as Iran War Escalation Risks Rise

Recently, The Economist warned that the war with Iran could soon escalate as it begins to involve more countries across the region. Indeed, Gulf nations such as Saudi Arabia and the United Arab Emirates could become more directly involved as Iranian attacks increasingly target their energy infrastructure and commercial shipping in the Persian Gulf. As a result, the three best defense ETFs for investors to watch as a hedge against a prolonged conflict with Iran are:

1. The iShares U.S. Aerospace & Defense ETF (ITA)
2. The SPDR S&P Aerospace & Defense ETF (XAR)
3. The Global X Defense Tech ETF (SHLD)

Unsurprisingly, a major issue right now is the Strait of Hormuz, one of the world’s most important oil shipping routes. This means that disruptions there can quickly impact global energy markets. In fact, Iran has already threatened vessels and interfered with shipping traffic in the area, which has led to worries about further military escalation. However, while Iran could cause significant disruption, it would likely struggle to fully control or permanently close the strait, since the United States and its allies would probably step in to reopen it if necessary.

Nevertheless, the situation suggests that the conflict is entering a more dangerous phase. Early military strikes have already targeted Iranian leadership, nuclear facilities, and key military infrastructure. In response, retaliatory attacks are now spreading across the region. As the fighting continues and more countries become involved, the risk increases that the war could grow into a larger Middle Eastern conflict with serious geopolitical and economic consequences.

Which Defense ETF Is the Better Buy?

Turning to Wall Street, out of the three ETFs mentioned above, analysts think that XAR has the most room to run. In fact, XAR’s price target of $321.64 per share implies 19.7% upside potential.