Geopolitical Risk and the Energy Transition: A Defensive Investor's Guide to Energy and Security Stocks in 2025

As global tensions persist into the final months of 2025, investors are increasingly turning to defensive strategies to navigate the volatility of energy markets. From the ongoing Russia-Ukraine war to the destabilizing Red Sea attacks and the lingering effects of the Nord Stream pipeline sabotage, geopolitical risks have reshaped energy supply chains, pricing dynamics, and long-term investment priorities. For investors, the challenge lies in identifying assets that can withstand-or even benefit from-this turbulent landscape. This analysis explores how geopolitical risks are accelerating energy diversification and defense sector growth, while spotlighting specific stocks and sectors poised to deliver resilience in 2025 and beyond.

Geopolitical Risks and Energy Market Dynamics

The past three years have underscored the fragility of global energy systems. According to a report by S&P Global, the destruction of the Nord Stream 1 and 2 pipelines in 2022-2023 triggered immediate gas price spikes in Europe, exposing vulnerabilities in infrastructure and trade routes. Similarly, the Red Sea attacks in 2023 forced shipping companies to reroute vessels around Africa, increasing transportation costs and delaying energy deliveries. These disruptions have pushed nations to prioritize energy security over cost efficiency, with countries accelerating investments in renewables and regional energy cooperation.

Meanwhile, the Middle East's strategic pivot away from oil dependency-driven by OPEC production adjustments and foreign investment incentives-has further complicated global energy markets. In South America, shifting trade agreements threaten to fragment regional energy networks, particularly in the Mercosur bloc, where natural gas and electricity trade are at risk. According to S&P Global, such developments highlight the need for investors to focus on companies and sectors that can adapt to-or profit from-this fragmented landscape.

The Energy Transition: Headwinds and Tailwinds

While geopolitical risks have intensified short-term volatility, they have also accelerated long-term energy transition trends. The International Energy Agency (IEA) notes that energy security concerns have spurred record investments in solar, wind, and nuclear power, with renewables projected to account for 37–74% of global electricity generation by 2050. However, the transition is not without contradictions: fossil fuel production remains entrenched in the short term, driven by economic necessity and geopolitical leverage.

For defensive investors, this duality creates opportunities in both traditional and emerging energy sectors. Oilfield services firms like SLB N.V. (SLB) are well-positioned to benefit from offshore energy projects and carbon capture initiatives, while integrated majors such as Exxon Mobil (XOM) and Chevron (CVX) offer stability through diversified operations and strong balance sheets. In the renewable space, Solaris Energy Infrastructure (SEI) stands out for its role in meeting surging demand for natural gas-fired power, driven by the energy needs of AI and data centers.

Defense Sector: A Geopolitical Tailwind

As military tensions escalate, defense contractors are emerging as key beneficiaries of global spending increases. According to a Q3 2025 analysis by Yahoo Finance, defense stocks like RTX (NYSE:RTX) and Kratos Defense (NASDAQ:KTOS) delivered standout performance, with RTX reporting a 12% sales growth and a $251 billion backlog from missile systems and next-gen technology contracts. Similarly, GE Aerospace (GE) and Howmet Aerospace (HWM) are capitalizing on modernization efforts in the U.S. and allied militaries, with HWM's advanced materials critical for hypersonic and drone technologies.

The bipartisan support for defense spending in the U.S. and similar trends in Europe and Asia suggest this tailwind is here to stay. For investors, defense stocks offer not only growth potential but also the stability of long-term government contracts, making them a natural hedge against geopolitical uncertainty.

Strategic Recommendations for 2025

To build a resilient portfolio in this environment, investors should consider a dual approach:
1. Energy Sector Diversification: Allocate to both traditional and transition-oriented energy stocks. For example, Chevron (CVX) provides exposure to stable fossil fuel operations, while SLB offers growth in energy transition technologies.
2. Defense Sector Exposure: Prioritize companies with strong government ties and technological differentiation, such as RTX and GE Aerospace.

Additionally, ETFs focused on energy infrastructure and defense can provide broad-based exposure while mitigating individual stock risk. The key is to balance short-term volatility with long-term resilience, leveraging the interplay between geopolitical risks and market responses.

Conclusion

The geopolitical landscape of 2025 is defined by fragmentation, uncertainty, and rapid adaptation. For investors, the path forward lies in identifying assets that align with both immediate defensive needs and long-term energy transition goals. By strategically allocating to energy and defense stocks with strong fundamentals and geopolitical tailwinds, investors can navigate this complex environment with confidence.