Between February and December 2022, as Europe witnessed its largest military conflict since the Second World War, Lockheed Martin added billions of dollars to its market capitalisation, ExxonMobil reported the highest annual profit in its history, and German defence manufacturer Rheinmetall watched its order backlog more than double.

The tendency is to read these outcomes as evidence that wars produce winners and losers in markets. They do. But that framing is also incomplete. The more interesting question is: Why do these companies benefit in the first place? What exactly were investors rewarding? Was it simply exposure to defence spending and commodity cycles, or did conflict expose something deeper about the way capital allocates itself when long-held assumptions begin to unravel?

For much of the last decade, markets rewarded a fairly specific set of characteristics. Efficiency mattered. Asset-light business models commanded premium valuations. Global supply chains optimised for cost rather than redundancy. Growth narratives carried weight because investors broadly assumed a stable geopolitical backdrop, cheap capital, and uninterrupted trade. Conflict disrupted more than economic activity. It disrupted the hierarchy of preferences underpinning capital allocation.

Wars, in that sense, are less about indiscriminate destruction than they are about revealing what markets value once optimism becomes harder to justify.

The Rise of Policy-Backed Demand

Most equity analysis involves making educated guesses about future demand. Analysts forecast consumer spending patterns, estimate interest rate trajectories, model competitive dynamics, and build scenarios around economic growth. Even the most sophisticated valuation frameworks ultimately depend on assumptions about the future.

Conflict compresses that uncertainty for a small group of businesses.

Germany’s $114 billion special defence fund, announced within weeks of Russia’s invasion of Ukraine, represented more than a shift in military posture. It converted geopolitical urgency into future revenues. NATO members collectively spent an approximate $1.5 billion on defence in 2024, with several countries surpassing the alliance’s long-standing 2% of GDP target for the first time in decades. Governments moved from debating procurement timelines to accelerating them.

For defence contractors, demand stopped behaving like a forecast.

Lockheed Martin’s revenues increased from $59.8 billion in 2021 to approximately $71 billion by 2024. RTX Corporation reported a defence backlog exceeding $218 billion. Rheinmetall’s order book expanded from roughly €24 billion before the invasion to more than €55 billion, while Saab recorded its highest-ever order intake as European governments replenished inventories depleted by aid commitments and changing security priorities.

The market’s response was not simply a reward for companies manufacturing defence equipment. It reflected something more fundamental about investor behaviour. At a time when businesses across sectors struggled to provide visibility on earnings, governments effectively solved one of capital markets’ oldest problems. They transformed future demand from an analytical exercise into a budget line item.

Predictability is rarely exciting. It is, however, extremely valuable. In uncertain markets, it becomes scarce enough to command a premium.

Energy Security and the Repricing of Transition Timelines

Energy markets tell a similar story, although through a different mechanism.

Entering the 2020s, the dominant assumption was that traditional energy companies would continue generating cash in the near term while gradually ceding relevance to lower-carbon alternatives. The debate centred on pace rather than direction. The transition had become less a question of if and more a question of when.

Russia’s position as one of the world’s largest energy exporters complicated that narrative almost overnight.

Brent crude prices surged above $120 per barrel during 2022. ExxonMobil reported net income of $55.7 billion, the highest annual profit in its history. Shell generated adjusted earnings of approximately $39.9 billion, while Saudi Aramco recorded profits exceeding $161 billion. The headlines understandably focused on the magnitude of these figures.

The more consequential shift occurred beneath them.

Europe’s scramble to replace Russian gas transformed liquefied natural gas infrastructure from a transitional asset into a strategic necessity. Import terminals that had struggled to attract enthusiasm became essential components of national energy security. Existing hydrocarbon infrastructure acquired a longer economic runway than markets had previously assumed.

The episode exposed a tension that extends well beyond energy policy. Transitions unfold on engineering timelines as much as political ones. Infrastructure cannot be built through ambition alone, and dependencies accumulated over decades cannot be unwound within a single electoral cycle.

For years, capital markets had increasingly treated conventional energy as an asset class in managed decline. Conflict forced investors to reconsider how quickly that decline would actually materialise. Extending the lifespan of a cash flow is not the same as growing it, but both can reshape valuations in meaningful ways.

Energy did not simply become more profitable. It became less terminal.

When Efficiency Becomes Fragility

If defence and energy illustrate where capital moved, they also reveal what markets had spent years taking for granted.

The businesses that struggled during periods of geopolitical stress were not necessarily those closest to the battlefield. They were often those built around assumptions of continuity. Airlines absorbed rising fuel costs while rerouting flights around restricted airspace, extending travel times and pressuring margins. Consumer discretionary businesses faced softer demand as households postponed non-essential spending in favour of precaution.

The more significant adjustment, however, emerged within manufacturing and supply chains.

For decades, efficiency represented managerial competence. Lean inventories improved returns on capital. Just-in-time systems minimised waste. Supplier concentration reduced costs. Redundancy was treated as evidence that resources were being deployed poorly. The logic was compelling because the environment rewarded it.

Conflict exposed its vulnerabilities.

Manufacturers diversified suppliers, increased inventory buffers, near-shored production, and invested in resilience measures that would once have attracted criticism from investors focused on efficiency metrics. The objective shifted from extracting maximum performance under ideal conditions to preserving continuity under imperfect ones.

This matters because markets rarely reward strategy in absolute terms. They reward strategy relative to prevailing conditions. What looked like overcaution in 2015 looked like foresight in 2022. Markets updated accordingly.

The Repricing of Risk and Resilience

Across defence, energy, and manufacturing, a broader pattern begins to emerge. Conflict does not fundamentally alter the mechanics of capital markets. Investors still seek growth, profitability, and attractive returns. What changes is the order in which those priorities are ranked.

Throughout the 2010s, markets rewarded scale, efficiency, and asset-light business models because they reflected confidence in a particular version of the world. Globalisation appeared durable. Financing conditions remained favourable. Supply chains functioned with remarkable consistency.

Periods of geopolitical stress test those assumptions.

The geopolitical risk index developed by Dario Caldara and Matteo Iacoviello finds that spikes in geopolitical risk are associated with subsequent declines in investment and economic activity, particularly in trade-exposed sectors. OECD analysis of the post-2022 environment notes that energy security and supply chain resilience rapidly displaced cost minimisation as policy priorities.

Market performance reflects the same shift in preferences. Aerospace and defence indices outperformed broader benchmarks through successive episodes of geopolitical stress, while sectors dependent on discretionary spending and frictionless trade struggled against higher uncertainty and input volatility.

The point is not that investors suddenly favour defence stocks or commodity producers. It is that they begin asking different questions.

Not simply whether a business can grow, but whether its earnings survive when the assumptions underpinning that growth begin to fracture.

Not merely whether management has optimised for efficiency, but whether the business retains enough flexibility to absorb disruption without permanently impairing its economics.

Those are not wartime questions. They are capital allocation questions that crises force markets to answer more honestly.

Conclusion: What Markets Value Under Stress

Wars redraw borders, reshape alliances, and alter institutions. Their effects on capital markets are less visible, but often more revealing.

Long before economists agree on what a conflict means for the global economy, investors have already begun expressing a view through allocation decisions. Capital moves away from business models that depend heavily on stability and towards those underwritten by necessity, strategic relevance, or policy support. The process is neither moral nor ideological. Markets simply reassess which assumptions still deserve confidence.

Perhaps that is why periods of conflict offer such an unusually honest view of capital allocation. The narratives change, but the underlying question remains the same: what deserves a premium when certainty becomes scarce?

Strip away the assumptions of peacetime, and the hierarchy becomes easier to see. Visibility begins to matter more than possibility. Security competes with efficiency. Durability acquires a premium that can rival growth itself. Wars do not teach markets what to value. They reveal what markets valued all along, once they can no longer afford to be wrong.