Shares of major oil and gas companies ExxonMobil (NYSE:XOM) And Conoco Phillips (NYSE:COP)and defense contractors Lockheed Martin (NYSE:LMT)rallied 2.8%, 4.2% and 3.5%, respectively, on Tuesday as of 1:17 p.m. ET, although broader indexes fell between 1% and 2% at the time.

Fortunately for their shareholders, but unfortunately for other sectors and the world, these important companies saw their stocks surge as oil prices soared on news that Iran would launch an imminent attack on Israel.

Shots were fired in the Middle East

On Tuesday, a senior White House official said Iran was preparing for an imminent ballistic missile attack on Israel. Then, at midday, the Israel Defense Forces reported that Iran had indeed fired missiles at Israel. The attack comes after Israel took action against the Iranian proxy army Hezbollah, which operates in southern Lebanon. In addition, Israel is preparing a limited military operation in southern Lebanon to clear the area of ​​Hezbollah militants.

Given that Iran and other Middle Eastern neighbors are major oil and gas producers, the prospect of a major regional conflict may affect oil supplies to the rest of the world. Because of this, both ExxonMobil and Conoco Phillips rallied along with oil prices, which rose nearly 4.5% to $71.25 as of this writing.

Higher oil prices would obviously benefit Exxon and Conoco’s sales and profits. Conoco is a pure explorer but has no significant production in the Middle East. And while Exxon is more diversified with midstream and downstream assets, the company still generates the majority of its revenue from oil and gas exploration and therefore benefits from rising prices. Additionally, Exxon sources the majority of its exploration activities outside the Middle East.

And of course, when geopolitical tensions rise, that usually bodes well for U.S. defense company stocks, with Lockheed Martin being the second-largest U.S. defense company by market capitalization.

Lockheed actually had a great year, with its stock rising sharply over the summer on better-than-expected earnings and higher sales of its F-35 fighter jets to more allied countries.

In addition to general geopolitical news, Exxon and Lockheed also received two positive company-specific news today. Exxon received approval from the Nigerian government to sell its offshore assets in Nigeria to Seplat for $1.28 billion. Notably, Nigeria has recently presented a rather difficult geographical location for oil and gas operators due to theft and corruption. Meanwhile, Lockheed Martin today received a naval contract for its Trident missile systems worth nearly $3.9 billion, in addition to several smaller aviation contracts.

Given the combined size of these industry giants, neither news is of much significance to either company. However, these items were likely still incremental positives.

Oil and Defense Stocks: Hedging Against Geopolitics

While oil and gas stocks are out of fashion for many investors given the focus on climate change and emissions reductions, they provide a hedge against geopolitical events like the ones we are experiencing today. Remember, after Russia’s invasion of Ukraine in early 2022, traditional energy stocks were among the best-performing stocks this year.

While oil and gas and defense stocks may not be as exciting as high-growth artificial intelligence (AI) these days, they do offer benefits in a healthy diversified portfolio. Additionally, most traditional energy and defense stocks also pay decent dividends.

Therefore, today should remind investors of the role this type of stock can play in providing insurance against geopolitical disasters while paying you increasing dividends.

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Billy Duberstein and/or his clients do not hold positions in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

Why ExxonMobil, Conoco Phillips and Lockheed Martin rallied on a bad day for markets was originally published by The Motley Fool