The Geopolitical and Commodity-Driven Bull Case for the FTSE 100 in 2026

The FTSE 100 has long served as a barometer for global uncertainty, with its performance often reflecting the interplay of geopolitical tensions and commodity price swings. As 2026 unfolds, two sectors-energy and defense-stand out as critical drivers of the index's trajectory. With the UK's strategic defense spending commitments and the lingering volatility in energy markets, investors are increasingly positioning for a bull case rooted in structural tailwinds and geopolitical imperatives.

Energy: A Sector Caught Between Supply Gluts and Strategic Demand

The energy sector's 10.75% weighting in the FTSE 100 underscores its outsized influence on the index. While oil prices have faced downward pressure in late 2025 due to global supply uncertainties, the sector's long-term outlook remains tied to geopolitical dynamics. The International Energy Agency forecasts a 3.85 million barrel-per-day supply glut in 2026, yet this narrative is complicated by surging demand for industrial metals like copper and lithium, which are critical to the energy transition.

For instance, copper prices have rallied amid supply constraints and robust demand from renewable infrastructure projects, benefiting UK-listed mining giants such as Rio Tinto and Anglo American.

Moreover, the sector's exposure to geopolitical flashpoints-such as U.S.-Venezuela tensions-has introduced short-term volatility. In early 2026, energy and materials stocks surged as investors priced in potential supply disruptions, illustrating how the FTSE 100's energy component remains a proxy for global instability. While oil prices may remain subdued, the broader energy complex's resilience-driven by industrial demand and strategic stockpiling-suggests a floor for sectoral performance.

Defense: A Tailwind Amplified by Geopolitical Escalation

The defense sector, embedded within the FTSE 100's industrials segment (14.45% weighting), has emerged as a standout beneficiary of 2026's geopolitical climate. The UK's commitment to increase defense spending to 2.5% of GDP by 2027 and 3.5% by 2035 has provided a clear tailwind for companies like BAE Systems and Babcock International. These firms have already seen sharp gains in early 2026, fueled by U.S. military actions in Venezuela and renewed NATO modernization efforts.

The sector's performance, however, is not without volatility. In late December 2025, defense stocks faltered as optimism over a potential Ukraine peace deal materialized, only to rebound in early 2026 amid renewed tensions. This seesaw reflects the sector's dual role as both a cyclical play on conflict and a long-term beneficiary of structural spending trends. According to the Institute for Fiscal Studies, the UK's defense plan includes reallocating funds from overseas aid to bolster military capabilities, a move that could sustain sectoral growth even as global tensions ebb and flow.

The Bull Case: Strategic Positioning in a Fragmented World

The FTSE 100's bull case in 2026 hinges on its unique exposure to sectors that thrive in times of uncertainty. Energy and defense, while volatile, are anchored by structural trends: the energy transition's demand for industrial metals and the global shift toward militarization. Unlike technology-driven indices such as the DAX, the FTSE 100's underweight in tech may limit its upside in a low-geopolitical-risk environment, but this underweight becomes an advantage when global instability drives demand for physical assets and national security.

For investors, the key lies in balancing short-term volatility with long-term positioning. Energy stocks offer exposure to commodity-driven rallies, while defense firms benefit from predictable, inflation-protected revenue streams. Together, they form a compelling narrative for the FTSE 100 in 2026-a narrative where geopolitical uncertainty is not a risk but a catalyst.