5 ASX Stocks to Buy (and 3 to Avoid) as the Iran War Shakes the Market

ASX stocks to buy and avoid as the Iran war shakes markets

The ASX 200 shrugged off the initial shock on Monday, closing flat at 9,200.9, but reality caught up fast on Tuesday. Only two of eleven sectors finished in the green, and the damage was widespread. RBA Governor Michele Bullock added fuel by warning every meeting is now “live” for a potential rate hike, as a Middle East supply shock threatens to push inflation higher. For investors, this creates a rare situation where certain stocks are being lifted by the crisis while others face compounding headwinds. Here is how we would split them.

What are the Best ASX Stocks to invest in right now?

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5 ASX Stocks To Buy Right Now

Woodside Energy (ASX: WDS) is our top pick. Brent crude surged around 9% to above US$79 a barrel after Iran reportedly moved to close the Strait of Hormuz, the narrow waterway carrying roughly 20% of the world’s daily oil supply. Woodside jumped roughly 7% on Monday and held those gains into Tuesday. With record annual production, a dividend yield above 5%, and large-cap stability, Woodside gives investors direct oil exposure without excessive risk. If Barclays is right that Brent could hit US$100 should the conflict escalate, Woodside has significant further upside.

Santos (ASX: STO) rallied around 7% on Monday and offers something Woodside does not: a growth catalyst beyond the war premium. The Barossa LNG project is ramping up through 2027, which means Santos benefits from high energy prices now while building long-term production capacity. We believe Santos offers the best risk-reward combination of price leverage and structural growth.

Karoon Energy (ASX: KAR) surged more than 15% in a single session and is the highest-beta play in the group. At just A$1.25 billion in market cap, Karoon amplifies oil price moves in both directions. This is for investors with a genuine risk appetite who believe the conflict will sustain elevated crude prices for weeks, not days.

Gold deserves a place in portfolios as a direct hedge. Gold surged above US$5,400 on Tuesday, hitting its highest level in over a month, supported by safe-haven demand and JPMorgan’s year-end target of US$6,300. For ASX exposure, Northern Star Resources (ASX: NST) and Newmont Corporation (ASX: NEM) offer the most liquid options, though investors should note that even gold miners fell nearly 3% on Tuesday as the broader selloff dragged everything lower.

DroneShield (ASX: DRO) jumped roughly 7% on Monday to close at A$3.87 as defence spending expectations surged. The structural demand for counter-drone technology is real and extends well beyond this conflict. Tuesday’s 6% pullback to A$3.62 shows how quickly momentum can reverse in this environment. We would look to accumulate on weakness rather than chasing spikes, and Tuesday’s dip may be the kind of entry point patient investors should watch.

3 ASX Stocks to Avoid for Now

Banks are facing a double headwind that makes the current dip deceptive. The banking sector fell between 2.7% and 3.3% on Monday, and Tuesday brought fresh pain. Governor Bullock’s warning that a rate hike could come as early as this month, potentially a second consecutive increase after the RBA raised the cash rate 25 basis points to 3.85% in February, is a serious problem for rate-sensitive earnings. If sustained high oil prices push inflation back up, the RBA may tighten further, compressing margins and weighing on property portfolios. We would wait for RBA clarity before buying any bank dip.

Qantas (ASX: QAN) and the travel sector face direct margin compression from higher jet fuel costs, with Middle East airports shut down and routes disrupted. Unlike energy stocks, where high oil is a tailwind, for airlines, it is pure cost pressure with no offsetting revenue benefit. This headwind could persist for months even after the conflict cools.

Flight Centre (ASX: FLT) and travel retailers carry similar exposure. International booking disruptions are already flowing through, and consumer confidence takes a hit during prolonged conflicts. The risk here is not just the war itself but the second-order effect of an RBA rate hike crushing discretionary spending.

How We Would Position From Here

We believe energy and gold deserve a place in portfolios, but discipline matters more than speed right now. Dollar-cost averaging into Woodside or Santos makes more sense than going all-in, because the war premium could unwind quickly if the Strait reopens. On banks, patience will be rewarded with better entry points once the RBA’s direction becomes clearer. OPEC+ is adding 206,000 barrels per day from April, which should ease some supply pressure, but in our view, the structural risk of a prolonged conflict outweighs that relief for now.