How Wars and Conflicts Affect Your Investments
Fighting between Israel and Iran has created worry in financial markets around the world. Israeli attacks on Iranian military sites started on June 13, leading to return attacks. Then on June 21, the U.S. struck Iran's nuclear facilities. The situation keeps changing quickly, and no one knows what Iran will do next. This happens while the Israel-Gaza war continues and other conflicts rage in different parts of the world.
While the human cost is most important, investors need to understand how these events affect their money. The biggest fear is whether these conflicts could grow into large global wars, especially now that the U.S. is involved. While this could happen, history shows this is unlikely. Even serious conflicts like Russia's attack on Ukraine and the war in Afghanistan stayed limited, causing only short-term stock market swings.
This doesn't make these conflicts less serious. But it reminds us that making big changes to our investment portfolios because of these events can hurt our returns. During times like these, it's important to stay calm and learn from history and long-term market patterns.
Middle East tensions have gotten worse
Recent events show growing problems in the Middle East. Israeli forces hit Iranian nuclear sites and military leaders, damaging uranium facilities. Iran fought back with missile and drone attacks that reached Israeli territory. The U.S. then bombed three key nuclear sites. The fighting has also damaged important infrastructure like natural gas facilities and oil refineries in both countries.
The chart shows how geopolitical events (major world conflicts) have affected markets over the past 25 years. This includes Middle East conflicts that changed oil prices, like Iranian drone attacks on Saudi Arabia in 2019. These periods show that while markets can swing wildly in the short term, they typically recover from geopolitical shocks within weeks or months. What mattered more during these times were basic economic trends.
Oil prices have been unstable
Oil prices are one way that regional conflicts affect the rest of the world. The latest conflict immediately pushed Brent crude oil prices above $74 per barrel. Oil prices remain unstable but fell back toward $70 per barrel when tensions seemed to ease.
Oil prices affect the global economy because oil is used to make and transport almost everything. Higher oil prices mean more expensive gasoline and shipping costs, raising prices for consumers and businesses. This problem gets worse if important shipping routes close, like the Strait of Hormuz in the Persian Gulf. About one-quarter of the world's oil supply passes through this waterway.
However, current oil price levels aren't extremely high. While recent swings are notable, prices remain well below the peaks in 2022 during the early Russia-Ukraine conflict, when oil exceeded $120 per barrel. Current prices in the mid-$70s are normal for recent years. Just this year, oil prices have moved between $60 and $82 per barrel.
How wars affect investments depends on the economy
For investors worried about growing conflicts worldwide, looking at the big picture helps. From World War II to the Iraq War, markets may have reacted to conflicts short-term, but were driven by basic investment factors long-term.
For example, World War II boosted factory production after the Great Depression and brought women into the workforce. These changes helped drive the economy for decades. The Gulf War affected oil prices but also happened during the technology boom of the 1990s. In contrast, the decade after the Vietnam War had high oil prices and poor economic growth, leading to bad market performance.
This doesn't make the human cost of these wars less important. For the current situation, much depends on whether the conflict grows or starts to calm down. The involvement of major powers and threats to critical supply routes make things complex, but history shows that even significant regional conflicts tend to have limited long-term impact on global financial markets.
The bottom line? While Middle East tensions have created short-term market swings, investors should stay calm and avoid overreacting to news headlines. A portfolio focused on long-term financial goals remains the best approach during periods of geopolitical uncertainty.
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