Geopolitical Crossroads: Defense and Nuclear Energy Plays in West Asia and Ukraine

The recent phone call between French President Emmanuel Macron and Russian President Vladimir Putin—marking their first direct dialogue in over three years—has reignited speculation about geopolitical realignments in West Asia and Ukraine. While the talks yielded no immediate breakthroughs, they exposed critical fault lines and opportunities in defense and nuclear energy sectors. Investors should heed these shifts: the interplay of conflict, diplomacy, and energy transitions is set to redefine regional power dynamics and create asymmetric investment opportunities.

Defense Sector: A New Era of Spending and Technological Arms Race

The Macron-Putin talks underscored the unresolved nature of the Ukraine conflict, with Putin's insistence on “new territorial realities” clashing with Macron's demand for a ceasefire. This stalemate ensures defense spending will remain a priority. NATO's decision to raise defense spending targets to 5% of GDP by 2035—up from 2%—provides a clear tailwind.

Key Plays in Defense Technology:
- Northrop Grumman (NOC): Monopolizing the $4.5B B-21 Raider stealth bomber program and expanding its cybersecurity division.
- Raytheon Technologies (RTX): Benefiting from $1.5B in cybersecurity contracts and sustained demand for Patriot missiles.
- L3Harris (LHX): Leading in electronic warfare systems, critical for countering drone swarms—a growing threat in West Asia.

Ukraine's Defense Industrial Resurgence:
Despite Western sanctions on Russia, Kyiv's defense sector has grown from $1B in 2022 to $35B in 2025. However, 40% of its production capacity remains underfunded. Investors should watch for Western partnerships to unlock this potential. For instance, Ukrainian Defense Minister Oleksii Reznikov's proposal for a joint venture with European firms to produce artillery systems could create opportunities for firms like Rheinmetall (RHMGY), already supplying critical hardware to Kyiv.

Nuclear Energy: A Delicate Balance of Ambition and Risk

While the Macron-Putin talks focused on Iran's nuclear program—a sticking point for regional stability—the broader energy transition in West Asia remains unresolved.

West Asia's Dual Pathways:
1. Peaceful Nuclear Energy Expansion:
- UAE: The Barakah Nuclear Energy Plant, operational since 2021, aims to supply 25% of the UAE's electricity by 2030.
- Saudi Arabia: Vision 2030 includes plans for nuclear energy, though projects like the $8B King Abdullah City for Atomic Energy face delays.

1. Geopolitical Risks:
2. Iran's uranium enrichment and stalled JCPOA talks remain a flashpoint. While Macron emphasized compliance with the NPT, Putin's support for Iran's “right to peaceful nuclear energy” could open doors for firms like Rosatom or EDF, but only if diplomatic icebreakers materialize.

Investment Considerations and Risks

• ETFs for Defense Exposure:
• SPDR S&P Aerospace & Defense ETF (XAR): Tracks NOC, RTX, and European firms like Leonardo (LDOCF).

• Global X Defense ETF (SHLD): Up 20% YTD, with exposure to Boeing (BA) and Raytheon.

• Nuclear Energy Caution:

• Avoid direct plays on Iranian nuclear projects until sanctions ease. Instead, focus on firms with diversified portfolios, such as TotalEnergies (TTE.F), which balances renewables and conventional energy.

• Key Risks:

• Sanction Volatility: Russia's access to Western tech despite sanctions could disrupt supply chains.
• Oil Price Shocks: GCC nations' resilience (spare capacity, fiscal buffers) mitigates risks, but geopolitical flare-ups could spike volatility.

Conclusion: Navigate the Crossroads with Caution and Clarity

The Macron-Putin talks reveal a fractured geopolitical landscape, but they also highlight structural trends. Defense firms benefitting from NATO's spending ramp-up and counter-drone tech are near-term winners. Nuclear energy in West Asia offers long-term potential—if geopolitical clouds lift—but carries significant risks tied to sanctions and diplomacy.

Investment Advice:
- Overweight equities in NOC, RTX, and LHX for defense exposure.
- Use XAR or SHLD to hedge against sector-specific risks.
- Monitor Saudi Arabia's nuclear projects for entry points, but prioritize firms with diversified revenue streams.

The region's future hinges on whether diplomatic channels like Macron-Putin talks can translate into lasting agreements—or if investors must brace for prolonged instability. For now, the defense sector's tangible demand and nuclear energy's latent potential offer asymmetric opportunities in this high-stakes theater.