The Collapse of Nuclear Arms Control: Implications for Defense and Commodity Markets
Aime Summary
The collapse of nuclear arms control frameworks in 2025 has ignited a new era of strategic uncertainty, reshaping global defense spending, commodity markets, and asset allocation strategies. With the New START Treaty set to expire in February 2026 and the Intermediate-Range Nuclear Forces (INF) Treaty effectively defunct, the absence of binding agreements has accelerated a nuclear arms race between the U.S. and Russia, while China's rapid modernization adds further complexity. This analysis examines how these developments are driving investment trends in defense, commodities, and broader asset classes, with a focus on geopolitical risk as a central driver of strategic decision-making.
The Defense Sector: A New Cold War Economy
Global defense spending surged to $2.7 trillion in 2024, a 9.4% real-term increase, as nations scrambled to counter perceived threats in a post-INF and post-START world[1]. The U.S. alone allocated nearly $1 trillion for 2026, including $156.2 billion for modernization under the "One Big Beautiful Bill Act," which funds projects like the Golden Dome missile shield[2]. Russia, meanwhile, has deployed advanced systems such as the Avangard hypersonic glide vehicle and the Oreshnik intermediate-range missile, while China has constructed over 350 new nuclear missile silos[3].
The aerospace and defense sector has mirrored this surge, with the S&P Aerospace and Defense Select Industry Index rising 44% year-to-date in 2025, far outpacing the S&P 500's 10.3% growth[2]. Companies like Lockheed MartinLMT--, Raytheon, and BoeingBA-- have benefited from long-term government contracts and demand for next-generation technologies such as AI, hypersonics, and autonomous systems[4]. However, challenges persist, including supply chain bottlenecks and labor shortages, which could temper growth if not addressed[4].
Commodity Markets: Safe Havens and Volatility
Geopolitical risks tied to nuclear escalation have driven demand for safe-haven assets. Gold prices hit an all-time high of $3,167.57 per ounce in 2025 as investors sought refuge from potential economic shocks linked to nuclear conflict[5]. Energy markets have also been volatile, with oil prices surging to five-month highs due to OPEC+ production cuts and regional tensions[5]. Industrial metals like copper faced turbulence as trade policy shifts and reduced production in key exporting nations like Chile disrupted supply chains[5].
The U.S. administration's aggressive tariff regime, including punitive measures on China, Mexico, and Canada, has further exacerbated uncertainty. These tariffs, projected to reduce U.S. GDP by 6–8% over the next decade, have strained global trade and triggered retaliatory measures, compounding volatility in agricultural and industrial commodities[1].
Strategic Asset Allocation: Navigating the New Normal
Investors are rethinking traditional strategies in response to the nuclear arms race and trade wars. Diversification into international equities, bonds, and gold is increasingly recommended as a hedge against geopolitical instability[3]. For example, the European defense sector—projected to grow at 6.8% annually through 2035—offers opportunities in companies like Airbus and Leonardo, which are expanding their military technology portfolios[6].
Commodities remain a focal point, with gold and energy assets serving as inflation and risk hedges. Meanwhile, the U.S. dollar's dominance is under pressure as the eurozone and China adopt accommodative policies to offset economic slowdowns[5]. Currency pairs like USD/CAD and AUD/USD have shown strong correlations to oil and metal prices, reflecting the interconnectedness of geopolitical events and financial markets[5].
Conclusion: A Dangerous New Equilibrium
The collapse of nuclear arms control has created a dangerous equilibrium where strategic competition fuels both military spending and market volatility. While defense stocks and safe-haven assets offer short-term gains, the long-term risks of an uncontrolled arms race—coupled with trade frictions—demand a cautious, diversified approach. Investors must balance exposure to high-growth sectors like defense with hedging strategies that account for the unpredictable nature of a world where nuclear deterrence is once again a central feature of global politics.
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