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According to the U.S State Department, modern life as we know it depends on the security of space-based technology. “Modern life as we know it” – that’s no casual statement and it comes from a government agency practiced in the skills of understated diplomatic language.

It’s one thing for activists, such as Al Gore, to make passionate statements about how the climate may be changing and how that will change modern life as we know it. It’s entirely something else for the State Department to say something like that. This “event” is a big deal.

It effects everything from satellite TV and in-car navigation systems, to Air Force in-cockpit and munitions guidance systems, to advanced infantry technology allowing soldiers to position “good guys” and “bad guys” on the battlefield, to generals being able to monitor battles in real-time on a global scale.

A clear approach by the U.S. military in recent conflicts has been to rely on our “space-based assets” to create advantage over our adversaries, even when we are outnumbered by wide margins. Without that advantage, we would be far less successful militarily and would have to resort to much larger ground forces more like those of World War II. Wars would not be so quick and would result in more casualties and death on our side. The projection of U.S power would be greatly diminished without our space-based assets (jargon for military satellites), and we would have to be less militarily assertive globally.

While China is a trading partner, it is also a potential adversary. Their demonstration that they can knock out satellites changes the balance of things significantly. Even without a conflict, the relative power of China and the U.S has changed. We can no longer assume as much as we did about our relative military strength.

If China has the ability to take out our eyes and ears in space the way we took out Saddam’s eyes and ears in Iraq, that is a globally significant military power shift.

China may be more able to intimidate us than before and that will show up in subtle and not so subtle ways as time unfolds. China has been destined be a global power, and this move definitely takes them up a notch.

So what?

The U.S. will probably respond with stepped up research in counter-measure technology. That means more contracts and more profits for major defense contractors such as Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), Raytheon (NYSE:RTN), Rockwell Collins (NYSE:COL) and others.

Both the U.S. and China are massively dependent on imported oil, and both are maneuvering in different ways for alliances that will assure them long-term supplies. China is cozy with countries with which the U.S. is not on good terms, such as Iran and Venezuela.

As China makes investments in those countries and forms oil supply relationships, they may step up more boldly in the future to resist potential U.S. threats to those countries. That may add a new dimension to divining the future of oil prices and the opportunities for tradable oil company stocks. Some investors might decide to hedge there bets by increasing holdings in non-US (perhaps even non-European) oil companies such as PetroChina (NYSE:PTR).

We aren’t making any specific recommendations, but we are predicting that China’s successful satellite killer technology is an “event” that will subtly cause the flow of investment dollars to be redistributed in a variety of ways, most directly observable in the aerospace sector now and energy sector later.

(Disclosure: Author does not own any securities mentioned in this article)

Source: Investment Implications of China's Satellite Killer