US strikes in Iran over the weekend and retaliatory attacks across the region has driven a huge surge in European defence stocks as national security is once again put into the spotlight.

European defence stocks surged on Monday as markets reacted to the escalating conflict in the Middle East, following US and Israel airstrikes on Iran over the weekend which has provoked a wave of retaliatory strikes against US and Israeli assets across the region.

BAE Systems shares in London jumped about 7.4 per cent on Monday, extending gains over the session as the conflict escalated throughout the day. The stock is now up 27 per cent since January 1.

Germany’s Rheinmetall, Italy’s Leonardo, France’s Thales and Sweden’s Saab all traded higher, with moves in the 3.7–8.5 per cent range.

The broader STOXX Europe 600 index slid about 1.9 percent, with key national benchmarks including France’s CAC 40 and Germany’s DAX both retreating, while the FTSE 100 in London fell around 1.2 per cent as investors pared riskier assets. Energy stocks were among the few outperformers, with oil prices jumping up over 8 per cent.

The rally occurred as safe-haven flows and rising energy costs weighed on other segments of the market, especially aerospace and travel-related stocks, which struggled amid airspace closures and fuel cost concerns. Jet fuel-sensitive carriers were weaker, reflecting uncertainty over disrupted routes in and out of the region. 

The broader European aerospace and defence index (.SXPARO), which is exposed to civilian aircraft manufacturers pushed into the positive, up 0.4 per cent on the day.

Analysts at JPMorgan noted that civil aerospace faces persistent pressure while defence demand is “likely to rise,” highlighting weapons and air-defence systems as areas attracting renewed investor focus. The bank singled out BAE as particularly exposed to potential increases in U.S. and allied spending; around 40% of its revenues stem from US contracts.