13 March 2026
War has never been limited to the battlefield. Beyond loss of life, and physical destruction, armed conflict has consistently reshaped global financial markets. History shows that wars disrupt trade routes, unsettle energy markets, increase market volatility, and drive capital toward perceived safe‑haven . These forces influence inflation expectations and, importantly for consumers, monetary policy and interest rate decisions, meaning the economic effects of war often linger long after the fighting ends.
Middle East tensions: Why markets are paying attention
The latest Middle East conflicts have amplified geopolitical risk into financial markets, particularly threatening the transport of goods through the Strait of Hormuz, one of the world’s most critical oil chokepoints. Oil prices surged from around $60 per barrel in December 2025 to nearly $100 by early March, reflecting fears of supply disruption. Roughly 20% of global oil and liquefied natural gas supply passes through the Gulf region via the Strait of Hormuz, making it a key pressure point for global energy markets. In response to the sharp rise in oil prices and threats to supply, the International Energy Agency announced one of the largest strategic oil reserve releases on record, totalling 400 million barrels, around a third of government stockpiles and more than double the previous largest release.
While markets often initially view geopolitical shocks as temporary, prolonged escalation raises the risk of oil‑driven inflation. Rising oil prices feed directly into higher fuel and transport costs, which in turn place upward pressure on food prices through increased production and distribution expenses. As a result, sustained energy market disruptions increase the risk of broader inflation spillovers, making this one of the most closely watched global risks at present.
What history teaches us about oil shocks and war
Historically, wars in key energy regions tend to trigger oil price spikes, lift inflation expectations and drive the repricing of risk across financial markets. Some notable examples include:
The Yom Kippur War & 1973 Oil Embargo (1973-1974)
This conflict stands out as one of the most financially disruptive in history. The Arab oil embargo led to a quadrupling of oil prices, triggering global stagflation (stagnant growth coupled with high unemployment and inflation), prolonged equity market weakness, sharply higher bond yields, and a lasting structural shift in energy pricing. Unlike many conflicts, its market impact lasted years, not months, a reminder of how powerful energy shocks can be.
The Iran–Iraq War (1980-1981)
This prolonged conflict introduced sustained geopolitical risk premiums into oil markets, increasing price volatility and reinforcing inflation risks during an already fragile global economic backdrop. While equity markets largely absorbed the conflict, oil and currency markets were affected for extended periods, leading to a longer period of monetary tightening stemming from the oil crisis of the 1970s.
The Gulf War (1990-1991)
The Gulf War caused a sharp but short‑lived shock. Equities sold off as oil prices surged following Iraq’s invasion of Kuwait, but markets rebounded quickly once the conflict proved contained. This episode is often cited as an example of how swiftly markets can recover once uncertainty clears, particularly with supportive monetary policy.
The Russia–Ukraine War (2014, invasion 2022- present)
One of the most impactful conflicts of the modern era, this war affected not only energy markets but also food and commodities. Sanctions and supply disruptions pushed inflation higher, forcing central banks globally to tighten monetary policy, contributing to equity drawdowns, bond sell‑offs, and heightened currency volatility, especially in emerging markets. Although attention is firmly on escalating tensions in the Middle East, the Russia–Ukraine geopolitical conflict persists. As a result of the current developments in the Middle East, United States President Donald Trump has said his administration will lift some sanctions on oil-producing countries to keep energy prices down amid the US and Israel’s war on Iran. Though not specified the US currently has sanctions on the oil sectors of Russia, Iran and Venezuela.
What should investors do during times of war and uncertainty?
Periods of uncertainty can be emotionally and financially uncomfortable. However, investors are best served by staying focused on long‑term objectives rather than reacting to short‑term headlines.
Historically, wars tend to increase short‑term volatility but rarely change long‑term return drivers, unless they result in sustained macroeconomic shocks such as prolonged inflation or aggressive policy tightening. If a conflict materially alters the economic landscape, this is where tactical portfolio adjustments, discussed with a financial adviser may be appropriate.
Avoiding the “headline trap” is critical. Instead of exiting markets during periods of heightened stress, investors should focus on underlying macroeconomic signals and harness volatility as an opportunity to rebalance and strengthen portfolio diversification.
