3 Best Defense ETFs as Middle East Tensions Escalate

2026-03-27 19:29:22

The U.S. and Israel launched new strikes on Iran on Friday, which hit nuclear sites and major steel facilities as the conflict continues to escalate. According to reports, targets included a heavy water reactor at Iran’s Arak nuclear complex, a uranium-related facility in Yazd, and two of the country’s largest steel producers. Unsurprisingly, Iran responded by launching drones and missiles across the Persian Gulf. Therefore, investors may want to consider hedging against any further escalations with the following defense ETFs:

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Invesco Aerospace & Defense ETF PPA -1.49% ▼
iShares U.S. Aerospace & Defense ETF ITA -1.46% ▼
SPDR S&P Aerospace & Defense ETF XAR -1.96% ▼

Indeed, the back-and-forth is becoming more intense on both sides. Israel signaled that it plans to escalate even further after civilian areas were targeted, while President Donald Trump has been increasing pressure on Iran to reopen the Strait of Hormuz. He recently extended his deadline again, warning that Iran could face strikes on its power infrastructure if it does not comply. Meanwhile, Iran has rejected a U.S. ceasefire proposal delivered through Pakistan and instead put forward its own conditions, including keeping control over the Strait.

At the same time, the global impact is already being felt. Oil prices jumped nearly 3% to around $111 per barrel, which is adding to worries about fuel shortages and inflation. In addition, the U.S. is building up its military presence in the region, with reports suggesting up to 10,000 additional troops could be deployed on top of forces already sent.

Which Defense ETF Is the Better Buy?

Turning to Wall Street, out of the three ETFs mentioned above, analysts think that XAR has the most room to run. In fact, XAR’s price target of $344.82 per share implies 36.3% upside potential.

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