The U.S. military’s attack on Iran’s nuclear enrichment facilities early Saturday morning caught the world off guard, as President Trump had signaled a two-week window for Iran to negotiate peace with Israel and abandon its nuclear ambitions.

Despite Iran’s Security Council threatening to close the Strait of Hormuz, a vital artery for 20% of global oil, U.S. markets remain surprisingly calm. Dow Jones and S&P 500 futures are slightly up, and the VIX, a measure of market volatility, dropped 3.4%, signaling confidence.

Muted Oil Price Reaction
Oil prices, after an initial spike, have stabilized, with WTI crude at $74 per barrel (up $0.16) and Brent at $77.22 (up $0.21). This tepid response reflects speculation that Iran’s retaliation may be less severe than feared, despite its rhetoric. A month ago, WTI and Brent were at $61 and $64, respectively, underscoring recent price gains.

Economic Implications of a Strait Closure
Closing the Strait of Hormuz would spike energy prices, threatening inflation control and dashing hopes for 2025 rate cuts. While only 5% of U.S. oil transits the strait, 50% of China’s does, complicating Iran’s position given China’s alliance. U.S. and allied forces could counter any closure attempt, limiting its duration.

Market Outlook and Sector Opportunities
Markets may trade sideways as the conflict unfolds, but oil and defense stocks stand to benefit. Top oil firms, with breakeven costs around $40 per barrel, are poised for profit boosts. Defense giants, rebuilding stockpiles, are also set to gain. Beyond these, other industry players could capitalize on heightened tensions.

Below are two stocks investors might focus on in a range-bound market, offering potential upside from ongoing geopolitical uncertainty and sector resilience.

Boeing (BA): A Defense Contractor with Upside and Risks
Boeing (BA), a $150 billion aerospace leader, is also a top defense contractor, with its Defense, Space & Security (BDS) segment generating $23.9 billion in 2024 revenue, 36% of the total $66.5 billion. BDS, producing F/A-18 fighters and GBU-57 GBU-57 A/B Massive Ordnance Penetrator “bunker buster” bomb, secured $20.1 billion in Defense Dept. contracts in 2024.

The attack on Iran included an estimated 12 GBU-57s. While the exact number in the U.S.’s arsenal is unknown for strategic reasons, it is estimated there were around 20 of the 30,000 pound (13,600 kilogram) precision-guided bombs. Each one costs roughly $3.5 million, but the overall cost for the program, including development, testing, and integration, is considerably higher. In 2019, for example, BA received a $21 million contract modification for more bombs.

First-quarter BDS revenue declined 9% to $6.3 billion, but earning from operations rose almost 3% to $155 million. A $545 billion backlog and rising defense budgets ($886 billion in 2025) signal long-term growth potential.

Analysts project a $220 price target, implying over 10% upside. Risks, however, include $45.6 billion debt (down from $52.6 billion a year ago), ongoing 737 MAX issues, and competition from Lockheed Martin. Defense and services together account for 32% of revenue.

Occidental Petroleum (OXY): Permian Pure-Play
Occidental Petroleum (OXY), a $50 billion E&P firm, could triple by 2028 if oil prices soar, driven by its Permian dominance. First-quarter production reached 1.17 million BOE/d, up 24%, with $1.6 billion in free cash flow.

Its $20 per barrel Permian breakeven costs maximize profits in high-price scenarios. A 2% dividend yield and $3 billion debt reduction strengthen its balance sheet. Analysts forecast an $49 price target, implying 9% upside, with a 29% EPS decline, but that was in a falling oil price scenario.

OPEC+ production hikes could cap prices, yet unlike the diversified majors, OXY’s U.S.-focused shale operations amplify upside, though it is exposed to demand shocks. Still, OXY holds significant potential in the event of Middle East-driven price spikes.

— Rich Duprey

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Source: Money Morning