The Iran Shock: Sectors Facing the Biggest Risks

The conflict with Iran has escalated considerably over the last 48 hours with no diplomatic off-ramp in sight. U.S. and Israeli strikes have expanded to include Iranian oil infrastructure, while Iran has launched a wave of retaliatory strikes—hundreds of drones and missiles targeting U.S. bases and neighboring Saudi Arabia, the UAE, and Bahrain. Shipping through the Strait of Hormuz is at a virtual standstill following Iran’s threats to destroy any vessel attempting transit. With 20% of the world’s oil supply effectively frozen, Brent crude is surging past $105 per barrel. To be sure, the S&P 500 has held up better than many international markets, down just around 1.5% to 2% over the past week despite the turmoil. Why U.S. Stocks Aren’t Crashing With Iran War Yet: Beneath the headline resilience, smart money is likely rotating away from broad exposure toward sectors that better withstand prolonged conflict, supply disruptions, and defensive tailwinds. So which sectors should investors be cautious about in the current market?

Global Tourism and Aviation

The airline industry is hit by a “double squeeze” during Middle Eastern conflicts. First, the surge in Brent crude directly inflates the cost of jet fuel, which typically accounts for 20% to 30% of an airline’s operating expenses. Second, as the conflict expands, airspace closures over the Levant and Iraq force carriers to reroute and fly circuitous routes to avoid Middle Eastern airspace, significantly increasing fuel burn. Unlike the post-pandemic travel boom where consumers ignored high prices, a prolonged conflict combined with energy-driven inflation may finally cool discretionary international travel. Carriers with heavy international exposure, such as Delta (DAL), face the highest risk of margin compression and route cancellations.

Chemicals and Paints

Many industrial paints and chemicals are derived from petroleum, leaving manufacturers exposed when oil prices rise. As crude climbs, the cost of key feedstocks such as naphtha and benzene increases, creating immediate pressure on input costs. Passing those increases to customers becomes difficult when economic growth is slowing, which can compress margins. Sherwin-Williams (SHW) reflected these concerns in early March, falling more than 3% in a single Dow Jones session. The stock has continued to weaken, declining for five consecutive days and losing more than 8% over the past two weeks as investors price in potential earnings pressure.

Semi-Discretionary Tech and Hardware

While Big Tech is often seen as a safe haven, hardware-heavy companies are somewhat vulnerable to logistics inflation tied to the physical movement of goods through global chokepoints. The de facto closure of the Strait of Hormuz has triggered a logistics bottleneck. Rerouting around Africa adds 10 to 14 days to transit times and incurs massive emergency surcharges, impacting the just-in-time manufacturing model. While big brands like Apple (AAPL) should navigate supply chain issues better, smaller names could face pressure. As global shipping rates stay elevated, analysts are concerned about inventory shortages for new hardware and the impact of freight surcharges on quarterly margins.

High-Debt Utilities

Under normal circumstances, utilities are considered defensive. But geopolitical conflicts often keep inflation elevated, preventing central banks from cutting interest rates. Capital-intensive companies with large debt loads, such as NextEra Energy (NEE), then face rising borrowing costs. While its renewable portfolio could benefit from higher fossil-fuel prices, fixed-price contracts limit immediate revenue gains. At the same time, persistent inflation and higher rates increase the cost of servicing its roughly $85+ billion in debt. Rising government bond yields also pull investors away from dividend-paying utilities toward safer Treasury bills, turning high-debt utilities into a defensive trap rather than a wartime winner.

Regional Banking 

Large money-center banks have diversified revenue streams, but regional banks depend more heavily on the financial health of local borrowers. When oil prices rise past $105 per barrel, energy costs increase for consumers and small businesses, putting pressure on spending and operating margins. If higher energy prices slow economic activity or lead to more defaults on small business loans, regional banks such as KeyCorp (KEY) could see credit quality deteriorate quickly. Unlike larger banks, they also lack global trading operations that can benefit from market volatility.

How Do You Protect Your Wealth From Geopolitical Shock?

While headlines focus on missiles and oil prices, the bigger risk for investors lies in how rising energy costs, logistics disruptions, and elevated interest rates quietly pressure certain sectors. Reacting emotionally to war headlines or staying concentrated in vulnerable industries can leave portfolios exposed if volatility continues. This is where disciplined, diversified investing becomes critical. Our wealth management partner builds rule-based robust portfolios to capture and protect wealth while leveraging the Trefis High Quality Portfolio, which has returned > 105% since inception.