Geopolitical Uncertainty and the Implications for Defense and Energy Sectors Amid US-Ukraine-Russia Negotiations

The interplay of geopolitical tensions between the U.S., Ukraine, and Russia in 2025 has created a volatile yet fertile landscape for investors seeking opportunities in defense and energy sectors. As the conflict enters a prolonged phase and peace negotiations remain fraught with uncertainty, capital is increasingly flowing toward industries tied to national security, energy resilience, and strategic realignments. This analysis explores the near-term investment implications of these dynamics, focusing on sectors and companies poised to benefit from the evolving geopolitical landscape.

Defense Sector: A Booming Market Amid Prolonged Conflict

The defense sector has emerged as a cornerstone of global investment in 2025, driven by escalating military spending and the need for advanced capabilities. According to a report by Bloomberg, the S&P Aerospace & Defense index has surged approximately 40% year-to-date, reflecting heightened demand for military equipment and services. This growth is fueled by both European and U.S. governments ramping up defense budgets in response to the Russia-Ukraine war and broader regional tensions.

Defense ETFs have become a popular vehicle for investors. The Select STOXX Europe Aerospace & Defense ETF (EUAD) and the Global X Defense Tech ETF (SHLD) have delivered strong returns, with exposure to European and global defense contractors like Rheinmetall and BAE Systems according to ETF trends. In the U.S., the iShares U.S. Aerospace & Defense ETF (ITA), with over $12 billion in assets, remains a dominant player, holding major contractors such as Lockheed Martin and Boeing. These funds capitalize on a sector where contracts are expanding: for instance, RTX secured a $250 million missile production deal with Japan, while General Dynamics received a $12 billion contract for submarine construction according to investing news.

The sector's resilience is further underscored by the inclusion of nuclear weapon manufacturers in ESG funds-a shift driven by national security priorities according to Bloomberg. This trend highlights a broader realignment of investment principles, where geopolitical stability now takes precedence over traditional ESG criteria.

Energy Sector: Volatility and Strategic Realignments

The energy sector is another critical area of opportunity, shaped by the war's disruption of supply chains and U.S. policy shifts. Western oil majors such as ExxonMobil, Chevron, Shell, and TotalEnergies have benefited from reduced Russian fuel exports, which have been crippled by Ukrainian drone strikes and U.S. sanctions. Refining profit margins for these companies surged 61% in Q3 2025 compared to the previous quarter, reflecting the market's response to geopolitical instability.

U.S. policy under the Trump administration has further tilted the energy sector toward traditional fuels. ExxonMobil has reallocated capital away from low-carbon initiatives and toward oil and gas operations, aligning with the administration's emphasis on energy dominance. This strategy is bolstered by strong global demand, particularly from the AI datacenter industry, which requires vast energy inputs according to Forbes analysis.

However, the sector is not without risks. The potential for a peace deal in Ukraine has already caused energy stocks to dip, as investors anticipate reduced military spending and a shift in global priorities. Additionally, the global oil market is projected to face a surplus in 2026 due to OPEC+ output increases and modest demand growth. Investors must balance these uncertainties with the long-term appeal of energy resilience, especially as countries prioritize self-sufficiency in the face of geopolitical fragmentation.

Risks and Strategic Considerations

While defense and energy sectors offer compelling opportunities, investors must remain vigilant about emerging risks. The Trump administration's transactional foreign policy approach could destabilize long-standing alliances, creating market volatility. Similarly, trade protectionism and tariffs-particularly on refined copper and other metals-add complexity to global supply chains according to ING analysis.

The energy transition also faces headwinds. Despite $1.5 trillion in global energy investment in 2025, the U.S. administration's skepticism toward climate policy has muddied the outlook for renewables. Investors should monitor how geopolitical priorities intersect with environmental goals, as this tension could reshape sector dynamics in the coming years.

Conclusion: Navigating the New Geopolitical Order

The U.S.-Ukraine-Russia negotiations and the broader conflict have redefined the investment landscape for defense and energy sectors. Defense ETFs and traditional energy producers are well-positioned to capitalize on heightened security demands and supply chain disruptions. However, the path forward is not without challenges, including policy shifts, market volatility, and the unpredictable nature of peace negotiations.

For investors, the key lies in balancing exposure to these sectors with a diversified portfolio that accounts for geopolitical risks. As the world grapples with a fragmented economic order, defense and energy will remain critical pillars of resilience-and, by extension, investment opportunity.