Assessing the Impact of Escalating US Military Involvement in Gaza on Global Commodity and Defense Sectors

The geopolitical landscape in late 2025 remains dominated by the protracted conflict in Gaza, with the United States playing a pivotal role through military aid, diplomatic efforts, and indirect troop deployments. As the situation evolves, investors are increasingly scrutinizing how these developments shape global commodity markets and defense sector dynamics. This analysis explores the interplay between U.S. military involvement in Gaza and its cascading effects on key asset classes, offering strategic insights for positioning portfolios in an era of heightened volatility.

Defense Sector: A Beneficiary of Prolonged Conflict

The defense sector has emerged as a clear winner in the wake of escalating tensions in Gaza. According to a Reuters report, the fragile ceasefire agreement in October 2025-marked by repeated violations-spurred a 1.8%, 2.2%, and 1.8% surge in the stock prices of Raytheon Technologies (RTX), Lockheed Martin (LMT), and Boeing (BA), respectively. These gains underscore the sector's sensitivity to conflict-driven demand for military hardware. Companies supplying critical systems to Israel, such as the Iron Dome (RTX) and F-35 fighter jets (LMT), are particularly well-positioned to capitalize on sustained hostilities.

The U.S. government's recent approval of the $150 billion "One Big Beautiful Bill Act" further amplifies this tailwind, injecting liquidity into defense budgets and reinforcing long-term growth prospects. NATO's commitment to increase defense spending to 5% of GDP by 2035 adds another layer of support, ensuring sustained demand for U.S.-based defense manufacturers. Defense ETFs like the iShares U.S. Aerospace & Defense ETF (ITA) and Global X Defense Tech ETF (SHLD) have mirrored this momentum, delivering robust year-to-date returns.

Notably, the U.S. has also signaled its intent to deploy an International Stabilization Force (ISF) in Israeli-held Gaza by early 2026, focusing on demilitarization and security stabilization. While this initiative remains in its planning stages, it highlights the potential for expanded U.S. military-industrial engagement in the region, further bolstering sector fundamentals.

Commodity Markets: Oil, Gold, and Copper in the Crosshairs

The Gaza conflict has introduced significant volatility into global commodity markets, with oil, gold, and copper exhibiting divergent trends.

Oil initially reacted to the October 2025 ceasefire agreement by dropping 1.6% as the risk premium for Middle East supply disruptions eased. Subsequent trading saw prices fall over 3% as market focus shifted back to global supply dynamics, including OPEC+ production adjustments and U.S. shale output. However, renewed violence or prolonged instability could reignite upward pressure on oil prices, given the region's strategic importance to global energy flows.

Gold, a traditional safe-haven asset, reached record highs above $4,374 per troy ounce in October 2025, driven by a confluence of factors including the Gaza conflict, U.S.-China trade tensions, and inflationary pressures. Central banks have accelerated gold purchases to diversify reserves, adding to upward momentum. While temporary ceasefire-related optimism caused a short-term correction below $4,000 per ounce in late October, the underlying drivers of demand remain intact.

Copper has also seen upward movement, reaching its highest level since May 2024, driven by supply constraints at major mines in Chile and broader industrial demand. While not directly tied to the Gaza conflict, the metal's performance reflects broader macroeconomic uncertainties, including inflation and global growth concerns.

Strategic Sector Positioning: Navigating Geopolitical Volatility

For investors, the key lies in balancing exposure to sectors that thrive during geopolitical uncertainty while hedging against potential downturns.

1. Defense Sector Exposure: Given the sector's strong performance and structural tailwinds, overweighting defense ETFs and individual stocks with high geopolitical beta (e.g., LMT, RTX) is prudent. The recent troop deployments to monitor ceasefire efforts and the potential ISF deployment suggest a prolonged U.S. military footprint in the region, further supporting sector growth.

2. Gold as a Hedging Tool: Allocating to gold remains a critical strategy for mitigating downside risk in equities and commodities. With central banks continuing to accumulate reserves and geopolitical tensions persisting, gold's role as a store of value is likely to strengthen. Investors should consider both physical bullion and ETFs like SPDR Gold Shares (GLD) to capitalize on this trend.

3. Commodity Diversification: While oil and copper face mixed near-term prospects, their long-term trajectories depend on global energy transitions and supply chain resilience. Investors should adopt a selective approach, favoring copper for its industrial demand and oil for its cyclical volatility.

Conclusion

The U.S. military's evolving role in Gaza has created a complex interplay of risks and opportunities across global markets. Defense stocks and gold have emerged as key beneficiaries of geopolitical volatility, while commodity markets remain subject to rapid shifts based on conflict dynamics. For investors, the path forward requires a disciplined, data-driven approach-leveraging sector-specific insights to navigate uncertainty and position for resilience in an unpredictable world.