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Defense stocks will be in the spotlight on Friday and in the coming days as investors focus on the ongoing crisis in the Middle East where Israel attacked Iran’s nuclear sites.

This attack’s severity means that Iran’s response will be brutal and possibly lead to a prolonged war that draws other countries, especially the United States. As a result, companies in the Military Industrial Complex (MIC) will likely benefit from this crisis. 

The situation is notable because Trump has been negotiating a truce with Iran, and is still holding talks with Russia. A peace deal in the two regions would likely impact these defense shares. 

Top defense stocks to buy 

Many companies in the defense sector may benefit from the ongoing crisis. The most notable of them are Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics.

Lockheed Martin Corporation (LMT)

LMT is the second-biggest company in the military-industrial complex that will benefit from this crisis. This explains why its stock jumped by over 4% in the premarket session. 

Lockheed is a juggernaut that manufactures many components used across all areas in the defense industry. Its aeronautics business includes the likes of F-35 Lightning, F-16 Fighting Falcon, and F-22 Raptor. 

The company also manufactures missiles, including the Javelin, Joint Air-to-Ground Missile (JGM), and Joint Air-to-Surface Standoff Missile (JASSM), and others.

Lockheed Martin also makes rotary and mission systems, including the Sirkosky Black Hawk, Aegis Combat System, and S-92 helicopter. It is also involved in the space industry, meaning that it will benefit from Trump’s Golden Dome project. 

Lockheed Martin stock price has underperformed the market in the past few months. It has risen by 0.77% in the last three months and by 4% in the last 12 months. It remains much lower than the last 12-month high of $598. 

Therefore, the LMT stock will likely do well in the next few weeks as the crisis in the Middle East will escalate. 

The most recent results showed that Lockheed Martin’s revenue rose by 4% in the first quarter to $18 billion, while its net earnings rose to $1.7 billion. It returned $1.5 billion to shareholders through dividends and buybacks.

Northrop Grumman (NOC)

Northrop Grumman is another top defense stock to buy after the crisis started. The company, like Lockheed, is involved in areas like land, sea, space, and air. 

Its aeronautical business makes products like B-2 Spirit, B-21 Raider, and E-2D Advanced Hawkeye. The company also makes rocket motors, advanced anti-radiation guided missiles, ground-based strategic deterrent, and airborne reconnaissance surveillance system.

Northrop Grumman’s products will likely be used if the Iran and Israel crisis escalates. 

The most recent results showed that Northrop Grumman’s new awards rose to $10.8 billion, giving it a new order backlog of $92.8 billion. Its revenue of $9.46 billion was 7% lower than the same quarter last year. Net earnings plunged by 49% to $481 million. NOC stock price has jumped by 17% in the last 12 months.

Read more: Why are analysts turning bullish on Northrop Grumman?

General Dynamics (GD)

General Dynamics is another defense stock that could benefit from the ongoing crisis in the Middle East. It is the fifth biggest defense contractor, focusing on combat systems, munitions and weapons, and marine systems. It also manufactures aerospace systems, including the popular Gulfstream Business Jet

Some of the most popular products that may be used in the Israeli and Iranian conflict are Abrams tank, Stryker Combat vehicles, and 155 millimeter ammunition. The stock will likely benefit from the ongoing crisis.

The other companies that may benefit are RTX, Huntington Ingalls Industries, Leidos, and Amentum.

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Adobe Systems shares fell 7% on Friday as the company’s sales outlook for Q3 didn’t impress the investors, who were expecting higher growth to compensate for AI risk.

The falls come even as the company behind Photoshop and Illustrator reports a robust second quarter for fiscal year 2025 and raises its full-year outlook.

This highlights a persistent concern among investors: whether Adobe is truly winning the artificial intelligence race, or if its advancements are enough to fend off increasingly agile and AI-native competitors.

Strong Q2 results

Adobe announced impressive Q2 FY2025 results, with record revenue of $5.87 billion, marking an 11% year-over-year growth.

Non-GAAP earnings per share (EPS) also climbed to $5.06, a 13% increase from the previous year, surpassing analyst expectations for both top and bottom lines.

The Digital Media segment, which includes its core Creative Cloud and Document Cloud products, saw revenue rise by 11% to $4.35 billion, while Digital Experience sales grew 10% year-over-year to $1.46 billion.

The company also reported strong annual recurring revenue (ARR) of $18.09 billion, increasing by 12.1% from the previous year.

The company’s direct AI ARR from products like Acrobat AI Assistant and Firefly is on pace to exceed its initial $250 million target for FY2025, Shantanu Narayan, Chair and CEO, Adobe, said in the company’s earnings call.

AI perception

However, the positive numbers weren’t enough to quell investor apprehension.

The significant drop in share price suggests that while Adobe is making strides in integrating AI into its offerings and showing healthy financial performance, the market perceives its AI strategy as perhaps not aggressive or transformative enough to ensure long-term dominance.

There’s a palpable sentiment that Adobe might be losing the AI battle, with nimble startups and even tech giants like OpenAI and Google rapidly developing sophisticated generative AI tools for image and video creation.

Analysts have noted that while management expresses optimism, there’s a “disconnect” between their internal signs of success and the clear monetization metrics investors are seeking.

Gil Luria, a DA Davidson analyst, told Bloomberg that “Somehow Adobe has been snagged as an AI loser” and added that it’s a misunderstanding of the technology.

Adobe’s Firefly has been used to generate 24 billion pieces of content in June, increasing from 20 billion in March, according to CFO Dan Durn.

Expectations

Looking ahead, Adobe provided an optimistic outlook for the third quarter of fiscal year 2025, projecting total revenue between $5.875 billion and $5.925 billion.

For the full fiscal year 2025, the company raised its revenue forecast to a range of $23.5 billion to $23.6 billion, up from its previous estimate, and anticipates non-GAAP EPS between $20.50 and $20.70.

This revised guidance, while ahead of Wall Street’s consensus estimates, still seems to be met with a lukewarm reception.

Adobe’s shares had fallen 7.23% to $383.75 in Friday’s session.

The company’s shares are down 12% in the year so far.

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Occidental Petroleum Corp (NYSE: OXY) is inching higher this morning after Israel launched an airstrike on Iran, resulting in a meaningful increase in oil prices.

Brent crude gained as much as 7.0% today following reports that Israel’s attack has killed senior Iranian officials, sparking fears of broader regional escalation.

This new wave of geopolitical risk is prompting investors to reconsider their exposure to oil, and OXY shares may be one of the best-positioned in the energy sector to benefit from this uncertainty.

Why is Occidental stock worth owning in 2025?

Occidental lacks the scale of its larger peers (Exxon and Chevron), but its smaller size means it can respond more sensitively – and potentially more profitably – to sharp movements in oil prices.

Down more than 25% versus its 52-week high, OXY stock presents an exciting combination of upside potential and fundamental strength at the time of writing.

Occidental shares are attractive as the company spans the full oil and gas value chain: upstream, midstream, and downstream.

This integrated model provides some insulation against volatility, but due to its scale, OXY still tends to move more closely with the price of crude than its larger peers.

In the current environment, where oil supply fears (related to Israel-Iran tension) are driving prices higher, that dynamic could play in favour of the NYSE-listed firm.

Warren Buffett currently owns OXY shares

Occidental stock may also be worth owning because the company has been on an exciting growth trajectory.

Since its bold 2019 acquisition of Anadarko Petroleum, backed by Warren Buffett, the company has made no secret of its intention to scale up.

Although the Anadarko deal left OXY heavily leveraged, management has worked diligently to improve the balance sheet while continuing to pursue strategic growth.

Two more acquisitions since then have signalled the management’s determination to compete at the top of the industry.

Additionally, Buffett’s multinational conglomerate Berkshire Hathaway has steadily increased its stake in Occidental Petroleum, now owning more than 25% of it.

That vote of confidence is meaningful: not only does it reinforce the company’s long-term value, but it also suggests Berkshire believes OXY shares are a strong inflation and energy shock hedge.

Should you invest in Occidental at current levels?

Note that Occidental Petroleum reported better-than-expected earnings for its fiscal Q1 last month, which further invokes confidence in buying OXY at current levels.

The company’s revenue was also up nearly 14% on a year-over-year basis in the first quarter.

While the consensus rating on OXY stock currently sits at “hold” only, analysts’ price target on it go as high as $72 at the time of writing, indicating potential upside of more than 50% from current levels.

Finally, a 2.08% dividend yield makes this oil stock all the more exciting to own in 2025.

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Travel and leisure stocks bore the brunt of investor anxiety on Friday after Israel launched airstrikes on Iranian targets, stoking fears of an escalating conflict in the Middle East.

The strikes, aimed at crippling Iran’s nuclear infrastructure, rattled global markets and sent oil prices surging, sparking a classic flight to safety.

The S&P 500 Index dropped 0.5% in trading as investors retreated from risk.

Meanwhile, safe-haven assets such as US Treasuries and gold advanced sharply, with crude oil notching its biggest intraday gain since 2020.

American Airlines, United Airlines, fall on fears of tepid travel demand

Fears that a prolonged conflict could weigh on fuel costs and dampen global travel demand pushed airline and cruise stocks lower.

Shares of American Airlines Group Inc. and United Airlines Holdings Inc. led losses within the travel sector, dragging down the S&P index of airline stocks.

United, which suspended flights between Newark and Tel Aviv, added to investor concerns over route disruptions and rising fuel prices.

“All travel stocks with a global footprint react negatively to heightened geopolitical tensions,” said Robert W. Baird & Co. analyst Michael Bellisario in a Bloomberg report.

“Consumer sentiment and cross-border demand could be negatively impacted by the recent events in the Middle East and the associated negative headlines.”

Cruise operator Carnival Corp. fell 4.4%, while Expedia Group Inc. lost 2%.

An S&P gauge tracking travel booking platforms, cruise lines, and hotels is on pace for its worst weekly decline in over two months, having fallen for five straight sessions.

Oil rally boosts energy and defense stocks: Diamondback, Halliburton gain

In contrast, energy shares rallied as oil surged on fears of supply disruptions.

Diamondback Energy Inc. rose nearly 3%, while oilfield services firm Halliburton Co. gained about 4%.

Industry majors Exxon Mobil Corp. and Chevron Corp. also advanced as traders priced in risk premiums to oil.

The path forward for oil remains uncertain.

“Crude’s ultimate landing point will likely hinge on whether Iran revives the 2019 playbook and targets tankers, pipelines, and key energy facilities across the region,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

Citigroup Inc. analyst Spiro Dounis, however, warned investors not to overreact, noting the “low risk of physical disruption” and predicting that bearish fundamentals could eventually weigh oil back down.

Defense and shipping firms see gains on military and logistics concerns

With Israel suggesting further strikes may follow, shares of US defense contractors also gained.

Lockheed Martin Corp. rose as much as 4.1%, while Northrop Grumman Corp. climbed 3.7%, as markets anticipated a rise in defense spending.

Shipping firms also benefited from the risk of conflict-related disruptions.

ZIM Integrated Shipping Services Ltd. advanced amid expectations that container freight rates could rise as vessels avoid the region and reroute around Africa.

Gold miners like Newmont Corp. also saw gains on the back of a rising gold price.

Caution prevails despite sharp market moves

Despite the swift market reaction, some analysts urged restraint.

“The response was traditionally risk off,” said Mark Hackett, chief market strategist at Nationwide.

“Still, the long-term impact of geopolitical events is usually limited in markets.”

“The impact is impossible to accurately calculate,” he added. “If the last three months have taught us anything, it is wise to wait for more information rather than emotionally react.”

With explosions reported near Tehran, Natanz, and other cities, and senior Iranian military figures reportedly killed, tensions are at their highest point in months.

Israeli Prime Minister Benjamin Netanyahu hinted at continued military operations, while former US President Donald Trump called on Iran to accept a nuclear deal “before it is too late.”

Markets are likely to remain volatile in the near term, as investors grapple with geopolitical uncertainty, energy market dynamics, and the prospect of a broader regional conflict.

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US markets closed in the red on Friday, also ending the week down, as it snapped a 2-week winning streak.

Israel is launching airstrikes on Iran, which has pushed the energy prices up, dragging the market down.

The S&P 500 index fell 1.13% to 5,976.97. The Nasdaq dropped 1.30% to 19,406.83. The Dow Jones plunged 1.79% to 42,197.79.

All but one of the 11 S&P 500 sectoral indices ended up in the red. Only the S&P 500 energy index was up in the session, gaining 1.42%.

S&P 500’s decline took off the gains it had seen in the week, and the index is down 0.43% for the week.

Energy and defence stocks were among the top gainers in the session.

Oracle Corporation, Occidental Petroleum, and Lockheed Martin were among the top gainers in the market. Oracle surged more than 7%.

Tesla, Exxon Mobil Corp also gained in the session with up moves between 1% to 2%.

Adobe Systems was among the top losers with a 5% decline as its sales outlook failed to satisfy investor concerns about AI.

Visa, Master Card, and Alibaba Group were also among the top losers with declines ranging between 3% and 4%.

Airline stocks, United Airlines and American Airlines Holding, fell 4% in the session as higher fuel costs and dampening travel demand dragged the stocks down.

Oil and energy stocks were up in the session due to higher energy prices. Oil prices surged by nearly 7% in the session.

Defense and shipping stocks also gained due to the anticipation of higher defense spending.

Visa and Master Card fell after a report came that retail companies like Amazon and Walmart are considering issuing their own stablecoins.

Israel-Iran conflict intensifies

Israel’s military strikes killed several high-ranking Iranian military officials, including the Chief of Staff of the Armed Forces, the Commander of the Islamic Revolutionary Guard Corps (IRGC), and the head of Iran’s Emergency Command.

Iran first responded by launching over 100 drones towards Israel. Later on Friday, Iran launched more ballistic missiles towards Israel.

Reuters reported that explosions were heard over Israel’s capital, Jerusalem, and Tel Aviv.

Israeli military says most of the missiles were intercepted.

An Iranian official said Tehran will target Israel’s economic and energy infrastructure if Iran’s structures are attacked.

The Israeli offensive, reportedly targeting nuclear enrichment sites, marks the largest attack on Iran since the Iran-Iraq War in the 1980s and comes just days ahead of a planned sixth round of nuclear talks between the US and Iran.

US President Donald Trump said it was not too late for Iran to stop the bombing campaign by reaching a nuclear deal.

US Energy Secretary Chris Wright said his team is monitoring the energy situation in the Middle East and any potential impacts to global energy supply.

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Archer Aviation Inc. (NYSE: ACHR) tanked nearly 15% on Friday after raising some $850 million through a registered direct offering.

According to the electric vertical takeoff and landing (eVTOL) company, the said offering involved about 85 million of its shares, each of which was sold at a unit price of $10.

The capital raise helped strengthen ACHR’s balance sheet – its pro forma liquidity position now sits at about $2 billion.

Archer Aviation plans on using new funds to bolster its commercial capabilities and infrastructure. Despite today’s decline, Archer Aviation stock is up well over 50% versus its year-to-date low.

Why did Archer Aviation stock slip on Friday?

A pullback in ACHR shares this morning suggests investors are not particularly happy about the capital raise, which may be because of three big reasons.

One – a direct offering increases the total number of shares outstanding. So, the existing investors essentially had their stakes in Archer Aviation stock diluted on Friday.

Two – the eVTOL firm offered shares at a discount to attract institutional investors. But investors often read it as a sign of weak confidence in the company’s ability to raise money at full value.

And finally, the direct offering serves as a reminder that Archer Aviation needs a lot of cash to fund its electric air taxi development, certification, and scaling.

This could mean that ACHR will likely continue to burn cash at an accelerated pace, which may make it resort to more offerings, diluting the existing shareholders further moving forward.

Note that Archer Aviation stock does not currently pay a dividend to appear any more exciting to own at current levels.

Should you buy ACHR shares after today’s pullback?

Archer Aviation shares may be worth buying after today’s weakness since the macro story is turning quickly in its favour.

US President Donald Trump has recently passed an executive order aimed at accelerating the adoption of the eVTOL technology, which suggests ACHR’s products will likely attract significant demand from both the commercial as well as government sectors.

Additionally, the company based out of San Jose, CA has already been picked as the provider of air taxi services for the Summer Olympics (2028) in Los Angeles.

The globally followed event will be a remarkable opportunity for Archer Aviation to showcase its aircraft.

Note that the NYSE-listed firm already has a partnership in place with United Airlines as well to launch eVTOL services across major cities like New York and Chicago.

Those interested in loading up on ACHR stock at current levels may also take heart in the fact that Wall Street currently has a consensus “overweight” rating on the eVTOL company, with the mean target of $12.33 indicating potential upside of well over 20% from here.

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Following significant growth in 2024, the US battery energy storage (BESS) market is experiencing a nationwide boom this year.

Declining battery manufacturing costs are a key factor in the rapid expansion observed. Rystad Energy forecasts this downward trend to persist for the next five to seven years, driven by continuous design enhancements.

While lawmakers consider rescinding tax incentives for low-carbon energies, creating policy headwinds for renewable energy investment, the grid-scale BESS market is currently unaffected.

Rystad Energy predicts an increase in the installation rate to approximately 16 GW per year by early 2026, indicating a continuation of this growth.

“As energy demand rises in the US due to increased electrification, grid resilience will continue to be critical, with batteries playing a key role in meeting this need, along with both traditional and renewable energy sources,” Artem Abramov, head of new energies at Rystad Energy, said in a release.

In 2024, the US grid-scale BESS market experienced substantial growth, with installations reaching 10 GW. This represents approximately a 60% increase from the 6 GW of capacity added in 2023, according to Abramov.

Planned inventory is a very strong leading indicator of actual capacity additions and we believe this rate of growth will create increased annual battery demand for grid-scale BESS.

States with highest level of BESS market

Texas and Arizona are experiencing the highest growth in the BESS market, while the California market saw stabilization last year.

By 2024, Texas had emerged as the largest US BESS market, with an installation rate of approximately four GW per year, comparable to California’s, according to Rystad Energy. 

In the past year, Texas has seen a substantial increase in its BESS inventory, rising from 5 GW to over 7 GW. 

This contrasts with California and suggests a probable continued rise in installations throughout the current year in Texas.

“Notwithstanding the growth in Texas, it is the rest of the country that is currently experiencing a BESS boom,’ the Norway-based energy intelligence company said. 

Currently, BESS inventory in emerging US markets, led by Arizona, stands at seven GW, a significant increase from the three GW recorded in the second quarter of last year.

Source: Rystad Energy

Batteries becoming significant power source

In established markets, batteries are becoming vital during peak power demand, effectively extending solar energy availability into the evening.

Batteries have fulfilled 13% of the power demand within the California Independent System Operator (CAISO) during their discharge hours over the past 90 days, Rystad said.

Although the trend is new, the days of batteries delivering more than 16% of electricity during discharge hours are becoming increasingly common.

During discharge hours, the average contribution is approximately 13%, but the peak contribution often reaches nearly 30%, it added.

The current 90-day average peak hour contribution has increased by 10 percentage points over the last 12 months, now reaching 26%.

Renewables

“Looking at the share of CAISO power demand satisfied by renewables – mainly solar, wind and hydro – we observed that the annual average increased from less than 30% in 2021 to more than 40% in the last 12 months,” Rystad said.

Renewable energy’s contribution continues to grow, peaking in spring to meet over 65% of daily demand on certain days in 2025, the data showed. However, its winter contribution remains consistent, supplying only 20-25% of demand.

Over the past four years, renewables integration has led to a significant reduction in CAISO’s reliance on energy imports, decreasing from approximately 27% to 16% of total system demand, according to Rystad. 

“As both BESS and solar PV installed capacity continue to grow in California, it is important to remember two things in particular: which power system challenges are being addressed by batteries, and what batteries cannot really help with,” Abramov said. 

Whether it is theoretically possible to have all renewable plus BESS systems in CAISO and what kind of overbuild – and economic implications for project developers and end consumers – will be associated with it remains to be seen.

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The long-simmering, complex conflict between Israel and Iran, a defining feature of the Middle East for decades, has violently erupted into a new and perilous phase.

Previously characterized by indirect attacks and proxy engagements, the hostilities have dramatically escalated, culminating in Israel’s reported airstrikes on Iranian military targets and its nuclear program on June 13.

This audacious move, which included the targeting of scientists and generals and reportedly killed the head of the Islamic Revolutionary Guard Corps, Hossein Salami, has pushed the two regional powers dangerously close to open warfare.

For years, Israel and Iran engaged in a shadow war, a series of mostly quiet, often deniable attacks, with Iran frequently operating through allied proxy groups.

However, this fragile equilibrium began to unravel following the outbreak of war between Israel and the Iran-backed Palestinian group Hamas in October 2023.

Since then, isolated incidents of direct fire, utilizing missiles and drones, have punctuated the escalating tensions.

The June 13 Israeli airstrikes, which caused explosions in the Iranian capital, Tehran, represent a major escalation.

In response to its own “pre-emptive strike,” Israel declared a state of emergency, bracing for the anticipated retaliation that Iranian officials have warned would follow any attack on its assets.

With a renewed global focus on Iran’s nuclear capabilities, the specter of open warfare looms large.

Israel, widely believed to possess its own nuclear arsenal, has long viewed a nuclear-armed Iran as an existential threat.

A friendship shattered: the roots of enmity

The current animosity starkly contrasts with a period of alliance between Israel and Iran that began in the 1950s under Iran’s last monarch, Shah Mohammad Reza Pahlavi.

This friendship abruptly ended with the 1979 Islamic Revolution in Iran.

The new clerical leadership in Tehran adopted a fiercely anti-Israel stance, calling for its destruction and denouncing the Jewish state as an imperialist power in the Middle East.

Since then, Iran has consistently supported groups that actively fight Israel, most notably Hamas, Hezbollah in Lebanon, and the Houthi rebels in Yemen—all designated as terrorist organizations by the United States.

For Israel, the prospect of Iran obtaining nuclear weapons is an overriding security concern.

Israeli officials have repeatedly implied that if Iran were on the verge of weapons capability, Israel would take pre-emptive military action, much as it did when it struck a reactor in Iraq in 1981 and an alleged Syrian nuclear site in 2007.

A history of direct confrontation

Prior to the latest Israeli offensive, the two nations had already exchanged direct blows for the first time in April 2024.

Iran launched a massive missile and drone attack on Israel, a move precipitated by an airstrike two weeks earlier on Iran’s diplomatic buildings in Damascus, Syria—an attack widely attributed to, though not officially acknowledged by, Israel.

While Iran’s April assault caused minimal damage and prompted a more limited Israeli counter-assault, this direct head-to-head fighting marked a dangerous precedent, moving their conflict into a more overt and perilous phase.

Further escalating the direct conflict, Israel assassinated Hamas’s political leader, Ismail Haniyeh, in Tehran in July of the same year.

Another round of missile attacks and airstrikes was exchanged by both sides in October.

Military might: a tale of asymmetry and ambition

In a conventional military comparison, Israel’s forces possess a significant technological advantage over Iran’s.

This is partly due to substantial military and financial support from the United States, which has long sought to ensure Israel’s qualitative military edge.

Israel is the only Middle Eastern state to have acquired Lockheed Martin Corp.’s F-35 stealth fighter jet, the world’s costliest weapons system.

It is also widely, though unofficially, understood to be a nuclear-armed state.

Iran, conversely, has long been suspected of harboring ambitions to develop nuclear weapons under the guise of its civilian nuclear power program—an ambition it consistently denies.

The country’s reserves of highly enriched uranium have been growing and could, according to experts, be quickly purified to the 90% level typically used in nuclear weapons if its leadership chose to do so.

However, Iran would still need to master the complex process of weaponizing the fuel to produce an operable device capable of hitting a remote target.

Decades of sanctions and political isolation have hampered Iran’s access to foreign military technology, compelling it to develop its own indigenous weapons capabilities.

Its combat aircraft fleet largely consists of older models acquired before the 1979 revolution.

Iran hopes to upgrade its military through increased collaboration with Russia, having agreed to purchase Sukhoi Su-35 fighter jets, although the delivery status of these aircraft remains unclear.

Despite its technological disadvantages, Iran’s military is believed to possess a significant stockpile of ballistic and cruise missiles, as well as a large fleet of relatively inexpensive unmanned aerial vehicles (drones), which it deployed against Israel in its 2024 assaults.

However, as those attacks demonstrated, penetrating Israel’s formidable, multi-layered air defenses is a significant challenge.

Israeli defenses include advanced fighter jets, the Arrow and David’s Sling air-defense systems, which, in conjunction with US and other allied forces in the region, reportedly intercepted 99% of the more than 300 drones and missiles Iran fired in the April 2024 barrage, according to Israel’s military.

Iran’s own defensive capabilities include surface-to-air missile systems, such as Russia’s S-300, and the locally made Arman anti-ballistic missile system.

These systems are not nearly as battle-tested as Israel’s, a reflection of Iran’s preference for asymmetric warfare, where it can project outsized power, over direct conventional combat. Both nations also possess cyberwarfare capabilities.

Over a decade ago, the Stuxnet malware, widely suspected to be a US and Israeli operation, compromised operations at an Iranian nuclear enrichment facility.

According to a US Defense Intelligence Agency assessment released last year, Iran is capable of “a range of cyber operations, from information operations to destructive attacks against government and commercial networks worldwide.”

Past cyberattacks attributed to Iran include a hack targeting Israeli water infrastructure, as noted by the Council on Foreign Relations.

The challenge of striking Iran’s nuclear program

An Israeli air attack specifically targeting Iran’s nuclear program would be an extreme and logistically complex operation.

Iran’s atomic sites are numerous, geographically dispersed, and, in recent years, many key assets have been moved deep underground to protect them from attack.

This has not deterred smaller-scale sabotage operations routinely attributed to Israel, including the assassinations of five Iranian nuclear scientists in Tehran since 2010 and an explosion at a key enrichment facility in 2021, for which Iran blamed Israel.

Israel claims to have destroyed most of Iran’s air defenses and much of its missile-making capacity in the October 2024 exchange.

If these capabilities have indeed been significantly neutralized, Israel would face considerably less resistance in a solo attack.

However, intelligence officials have cautioned that even a successful strike on Iran’s nuclear facilities might only delay, not definitively destroy, the country’s ability to eventually manufacture an atomic weapon.

Moreover, any such attack would be complicated by the operational requirements for Israel’s most advanced fighter jets, which would likely need aerial refueling to strike targets in Iran and return safely.

A senior Iranian military official responsible for protecting the country’s nuclear program stated in April 2024 that Iran would retaliate in kind if Israel targeted its assets.

He also hinted that even the threat of such an attack could push Iran to reconsider its stated policy of a peaceful nuclear program.

A web of alliances: regional and global alignments

Iran’s most crucial allies are the Shiite militias it supports with funding, weapons, and training in Lebanon (Hezbollah), Yemen (Houthis), and Iraq.

Hezbollah had long been the most formidable of these, but its recent clashes with Israel since the start of the Gaza war, including an Israeli ground incursion into Lebanon, have reportedly left it seriously weakened.

Tehran also lost its only state ally in the Middle East, Syria, with the fall of President Bashar al-Assad in December 2024.

Yemen’s Houthi rebels would likely be eager to participate in any wider conflict between Israel and Iran.

Since the start of the Israel-Hamas war, the Houthis have been launching ballistic missiles and drones at Israel, in addition to attacking commercial shipping in the Red Sea.

A Houthi drone strike in central Tel Aviv in July 2024 resulted in a fatality, the first deadly attack of its kind on Israeli soil. In early May 2025, a Houthi missile struck near Israel’s main airport, leading numerous foreign airlines to suspend flights.

Iran also maintains warm relations with Russia, although Russia’s ongoing war in Ukraine would likely limit its capacity to provide substantial assistance in a new conflict.

The Islamic Republic also has good ties with China, which has continued to purchase Iranian oil despite US and allied sanctions.

Israel, on its part, counts the United States and the United Kingdom as its key allies. Forces from both countries assisted in intercepting some of the missiles and drones Iran launched at Israel in 2024.

The US military also announced measures to bolster its presence in the Middle East, deploying additional ships, fighter planes, and ballistic missile defense vessels.

Nevertheless, the Israeli operation poses the first major foreign-policy crisis of US President Donald Trump’s second term, particularly as he had reportedly urged Israeli Prime Minister Benjamin Netanyahu not to proceed with such a strike.

The Arab states: a precarious balancing act

Many Arab states in the region find themselves in a difficult position.

Four Gulf Arab countries normalized relations with Israel in 2020 through the Abraham Accords, partly driven by a shared distrust of Iran.

However, these same countries have also sought to mend ties with Tehran as they focus on domestic economic growth and navigate a perceived US disengagement from the region.

Unlike during previous periods of tension over Iran’s nuclear program, this time they are publicly backing diplomatic solutions.

Iran and Saudi Arabia restored diplomatic relations in 2023 after a seven-year freeze.

Saudi Arabia has previously explored normalizing ties with Israel as part of a broader deal involving US security guarantees and would likely try to avoid becoming entangled in an Israel-Iran conflict.

It is considered unlikely that any Arab state would overtly side with Israel in a direct confrontation against a fellow Muslim country, especially one as powerful as Iran.

That said, an Israeli strike on Iran might only require their tacit acquiescence for Israeli jets to transit through their airspace.

The unfolding situation presents a complex geopolitical chessboard with potentially far-reaching consequences.

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European stock markets opened sharply lower on Friday, with investors reacting swiftly to a significant escalation of conflict in the Middle East following Israeli airstrikes on Iran.

The pan-European Stoxx 600 index was down, and oil prices surged as concerns over regional stability and potential supply disruptions took center stage.

About 20 minutes after the opening bell, the pan-European Stoxx 600 was trading 1% lower, a clear indication of the market’s nervousness.

The sell-off was broad-based, with nearly all sectors in negative territory, the notable exception being oil and gas stocks, which benefited from the spike in crude prices.

National bourses across the continent reflected the heightened risk aversion. Germany’s DAX tumbled 1.4% in early trade, while the French CAC 40 was 1.1% lower.

London’s FTSE 100, which had just come off a record high, was down 0.5%.

Futures markets had already signaled a turbulent start, with those tied to the pan-European Stoxx 600 last seen 1.2% lower, and futures linked to the German DAX index down by a more substantial 1.7%.

Even futures for the FTSE 100, despite its recent record, were pointing 0.5% lower.

Israel strikes Iran: details of the attack emerge

The market jitters were a direct consequence of Israeli military action against Iran in the early hours of Friday morning.

Reports indicated that Israel launched a series of airstrikes, and it was later stated that these actions killed the chief of the Iranian Armed Forces as well as two of the country’s leading nuclear scientists.

Israeli Prime Minister Benjamin Netanyahu, in an address, characterized the military action as a “targeted military operation” against Iran’s nuclear and ballistic missile program.

He specified that Israel had hit Iran’s main enrichment site at Natanz, targeted its leading nuclear scientists, and struck at the heart of its ballistic missile program.

This direct and significant military engagement, reportedly conducted without US support, marks a major escalation of tensions in the already volatile region.

Oil soars, safe havens sought as investors flee risk

The immediate and most dramatic market reaction was seen in the oil markets.

Crude oil futures jumped by as much as 13% on Thursday evening following the news of the Israeli airstrikes.

US West Texas Intermediate was last seen up 8.23% at $73.65 per barrel, while global benchmark Brent crude surged 7.96% to $74.88 per barrel.

These sharp increases put both benchmarks on course for their largest single-day gains since 2020.

The scale of the Israeli attack, explicitly aimed at Iran’s nuclear program, took markets by surprise and prompted a swift flight to safe-haven assets.

Investors sought protection in assets traditionally considered stable during periods of heightened volatility.

“The news has led to significant fears about an escalation and a wider regional conflict,” Deutsche Bank strategists noted in a report early Friday.

The effects of the attack have cascaded across global markets, with a strong risk-off move for several asset classes.

The sudden re-emergence of acute geopolitical risk has clearly unsettled investors, who are now reassessing their positions in light of the rapidly evolving situation in the Middle East.

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Iran will not be participating in the nuclear negotiations with the United States scheduled on Sunday, the country announced on state television on Friday in the wake of Israel’s airstrikes on Iran’s nuclear program and ballistic missile sites this morning.

Iran has also launched retaliatory attacks with Israel claiming the country has launched over 100 drones in the last few hours. 

Explosions were reported across Tehran, the central city of Natanz—home to one of Iran’s major nuclear enrichment plants—and several other locations.

Israeli Prime Minister Benjamin Netanyahu declared that Israeli forces had “struck at the heart of Iran’s nuclear enrichment program,” claiming they had also eliminated top Iranian military figures.

Among those reportedly killed in the strikes were Mohammad Bagheri, Iran’s Chief of Staff, and Hossein Salami, commander of the Islamic Revolutionary Guards Corps (IRGC), according to both Israeli authorities and Iranian state media.

Former US President Donald Trump, who withdrew the US from the original 2015 nuclear agreement during his first term, had expressed concern over the timing of the Israeli strikes.

“I worry this could blow the negotiations,” Trump said Thursday, adding that he had ordered some American personnel to evacuate the Middle East in case of Iranian counterstrikes that “could include missiles flying into their buildings.”

Iran has retaliated with over 100 drones, Israel claims

As news of the airstrikes broke, Iran launched a retaliatory barrage, with Israel claiming over 100 drones were deployed in response.

Air raid sirens reportedly sounded in several Israeli cities, though details of the damage remain sparse.

The situation has cast a shadow over the US-Iranian diplomatic efforts.

Negotiators from both countries were set to meet in Oman for the sixth round of discussions aimed at reviving the 2015 nuclear deal, which imposed strict limits on Iran’s uranium enrichment in exchange for sanctions relief.

However, with Iran pulling out of the talks, the future of diplomatic engagement appears increasingly uncertain.

The talks had already been strained over whether Iran should be allowed to continue enriching uranium on its own soil—a right Tehran insists is non-negotiable.

IAEA confirms Natanz hit, but no radiation leak

The IAEA confirmed that the Natanz nuclear facility, a critical site for Iran’s uranium enrichment, had been struck but reported no abnormal radiation levels.

Iran’s Bushehr nuclear power plant, the country’s first civilian nuclear facility, was not targeted in the attacks, Iranian officials told the watchdog.

Natanz, located about 150 miles south of Tehran, houses Iran’s most advanced centrifuges and has long been viewed by Western and Israeli intelligence agencies as a focal point of its nuclear ambitions.

“The type of concrete that (the Iranians) use is actually a very specialized, hardened concrete,” CNN military analyst Cedric Leighton said.

“It’s unclear whether Israel’s bombs can penetrate that type of concrete,” he said, adding that the Israelis would have to mount waves and waves of attacks.

Visual evidence from the scene showed thick plumes of smoke rising above the complex, though the full extent of the damage remains unclear.

Why does Israel oppose Iran’s nuclear activities?

Israel has long opposed any scenario where Iran could obtain a nuclear weapon.

The enmity between the two countries dates back to the 1979 Iranian Revolution and is exacerbated by Iran’s financial and military support to Hezbollah, Hamas, and other militant groups arrayed against Israel.

Analysts warn that Iran’s nuclear program has reached a critical point.

The International Atomic Energy Agency (IAEA) issued its first censure of Iran in two decades on Thursday, accusing Tehran of failing to comply with its nuclear nonproliferation commitments.

Iran rejected the censure, claiming it undermined the credibility of the global nuclear watchdog.

In May, Reuters reported seeing an IAEA report that found that Iran had carried out secret nuclear activities with material not declared to the nuclear watchdog at three locations that have long been under investigation.

In a separate report by IAEA, the watchdog said Iran now possesses enough enriched uranium—at 60% purity—to theoretically produce material for nine nuclear weapons if further refined to weapons-grade levels of 90%.

The fragile legacy of the 2015 deal

The original 2015 nuclear accord, signed under President Barack Obama, aimed to restrict Iran’s enrichment capabilities.

Under the agreement, Iran could enrich uranium to no more than 3.67% and maintain only a limited stockpile of 300kg using basic centrifuge technology.

After Trump’s 2018 withdrawal, Iran began incrementally breaching the deal’s limits, eventually reaching enrichment levels of up to 60%.

Despite severe economic sanctions and covert operations—including the assassination of top Iranian nuclear scientist Mohsen Fakhrizadeh in 2020—Iran’s nuclear development has continued.

With regional tensions at a boiling point, the immediate future of diplomacy looks bleak. As the possibility of further strikes and counterstrikes looms, the world watches nervously for signs of either a renewed dialogue—or a broader conflict.

Will the attack set Iran back on its nuclear programme?

Will Israel’s attack dent Iran’s efforts to advance its nuclear programme?

The Natanz facility has long been the centerpiece of Iran’s nuclear program, producing the majority of the country’s enriched uranium — including much of the near-weapons-grade material accumulated over the past three years.

The full scale of damage to the site following Israeli airstrikes remains unclear.

There is still no confirmation on whether Israel also targeted Fordow, Iran’s second major enrichment facility.

Located deep within a mountain and housed inside an Islamic Revolutionary Guards Corps base, Fordow was deliberately constructed to withstand aerial attacks.

International Atomic Energy Agency (IAEA) Director General Rafael Mariano Grossi, who has toured the site, has noted that it sits nearly a half-mile beneath the surface — making it the most fortified installation in Iran’s nuclear network.

“It may take days, or weeks, to answer one of the most critical questions surrounding the attack of Iran’s facilities: How long has Israel set back the Iranian nuclear program?” David E Sanger, White House and national security correspondent for The New York Times, who has covered Iran’s nuclear program for two decades, writes in a report.

“If the program is delayed only a year or two, it may look as if Israel has taken a huge risk for a fairly short-term delay. And among those risks is not only the possibility of a long-lasting war, but also that Iran will withdraw from the Nuclear Nonproliferation Treaty, take its program underground, and race for a weapon — exactly the outcome Mr. Netanyahu was out to prevent.”

Brett McGurk, who has advised multiple US administrations on Middle East affairs, emphasized the centrality of Fordow:

If you don’t get Fordow, you haven’t eliminated their ability to produce weapons-grade material.

American officials have said Israel does not have the bunker-busting bombs to get at that facility, where Iran’s most advanced centrifuges have been installed.

And if Fordow survives the attacks, then there is a good chance the key technology of the country’s the nuclear program will survive with it.

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