36 Years, 4 Wars, 1 Script: How Capital Prices the World Amid Conflict
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36 Years, 4 Wars, 1 Script: How Capital Prices the World Amid Conflict
When the cannons roar, gold flows in ten thousand taels. In turbulent times, ordinary people’s choices for wealth preservation.
Navigating Web3 tides with focused insightsBy Bitget Wallet
War reveals ruins to the world, while capital sees only prices.
As cannon fire reignites across the Middle East, colleagues in Dubai report air-raid sirens and missile streaks across the sky—a sky where humanity waits for an uncertain fate.
Meanwhile, along an invisible timeline, global financial markets have already begun recalculating: How high will oil prices climb? Will gold continue its surge? When will equities hit bottom and rebound?
Capital feels no sympathy—and no anger. It does just one thing, coldly and calmly: price uncertainty. To most people, it remains invisible, intangible, ruthlessly logical, and mercilessly paced.
Yet in turbulent times, understanding how capital operates—and how risk is priced—may be the last line of defense between ordinary individuals and the tide of history. Looking back at the intersection of geopolitical conflict and financial history, you’ll find a pattern that has scarcely changed: before every war, capital markets replay the same script—and over the past 36 years, this script has played out fully four times.
Capital fears not conflict—but “waiting”
From the 1991 Gulf War and the 2003 Iraq War to the 2022 Russia-Ukraine conflict, the script repeats identically each time. These three globally impactful geopolitical crises illustrate the market’s pricing rhythm across three phases: “build-up,” “outbreak,” and “clarity.”
Financial markets are, at their core, expectation-discounting machines. During the build-up phase, fear of potential supply disruptions sends oil and gold soaring, while global equities plunge sharply. Yet Wall Street abides by a blood-stained iron law: “Buy to the sound of cannons.”
Once the first shot rings out—or clarity emerges—the greatest uncertainty dissipates. Safe-haven assets often peak and retreat rapidly, while equities stage a deep V-shaped reversal amid despair. The war may continue—but capital’s panic has ended.
Below is a deep dive into how capital markets reacted during these three historical events:
1. 1990–1991 Gulf War: The classic “V-shaped reversal” and oil shock
This war stands as a textbook case in modern financial history for studying geopolitical shocks—perfectly embodying the principle: “Buy the rumor, sell the fact.”
Build-up phase (August 1990 – January 1991): Panic and flight to safety
- Oil surge: Following Iraq’s invasion of Kuwait, markets panicked over potential Middle Eastern oil supply disruption. Within two months, international oil prices surged from around $20 per barrel to over $40—a rise exceeding 100%.
- Equity selloff: Fueled by soaring oil prices and looming war, the U.S. S&P 500 Index plunged nearly 20% between July and October 1990.
The “shoe drops” (January 17, 1991): A counterintuitive market reversal
- On the first day of the U.S.-led “Operation Desert Storm,” markets delivered a highly counterintuitive reaction: With the military campaign unfolding overwhelmingly, “uncertainty” vanished instantly.
- Oil crash: Oil prices posted one of their largest single-day declines in history—plunging over 30% on the day hostilities began.
- Equity rally: The S&P 500 surged that day and launched a sharp V-shaped reversal—fully recovering losses within six months and reaching new all-time highs.
2. 2003 Iraq War: Relief after prolonged decline
The 2003 Iraq War unfolded against the lingering aftermath of the dot-com bubble burst and post-9/11 security anxieties—making market reactions less about panic and more about “better the devil you know.”
Build-up phase (end of 2002 – March 2003): Slow, grinding pressure
- During months of diplomatic deadlock and military preparation, markets remained skittish. The S&P 500 drifted lower steadily, while global capital flooded into gold and U.S. Treasuries amid rising risk aversion.
- Oil rose gradually—from $25 to nearly $40—driven by war expectations and Venezuela’s oil-sector strikes.
The “shoe drops” (March 20, 2003): “Bad news is good news”
- Strikingly, the absolute bottom for U.S. equities occurred one week before the war began—around March 11, 2003.
- When missiles struck Baghdad, markets interpreted it as “bad news exhausted.” Equities rallied swiftly, launching a four-year bull run. Safe-haven assets like gold cooled rapidly as the campaign progressed smoothly.
3. 2022 Russia-Ukraine Conflict: “Super stagflation” triggered by supply-chain breakdown
Unlike the previous two Middle Eastern wars—in which the U.S. achieved swift, overwhelming victory without causing long-term, substantive damage to global supply chains—the Russia-Ukraine conflict exerted deeper, heavier, and more structural impacts on capital markets, reshaping macroeconomic fundamentals.
Outbreak (February 2022): An epic commodities storm
- Russia is a global energy and industrial metals powerhouse; Ukraine is the “breadbasket of Europe.” Following the outbreak, Brent crude briefly breached $130 per barrel; European natural gas prices surged multiple-fold; wheat and nickel prices hit record highs.
Ongoing impact: The “double whammy” of inflation resurgence and monetary tightening
- Equities and bonds fell in tandem: The most devastating market impact of the Russia-Ukraine conflict was its complete shattering of pandemic-era fragility in global supply chains—directly triggering the worst inflation in 40 years across the U.S. and Europe.
- To combat this “imported inflation” driven by geopolitical conflict, the Federal Reserve launched its most aggressive hiking cycle in history—resulting in the rare 2022 “dual sell-off”: both stocks and bonds declined sharply, with the Nasdaq plunging over 30% for the year.
A fatal illusion: Never try to profit from war
Let us return to reality.
The sudden escalation in Middle Eastern tensions has once again thrust global capital markets into a high-pressure “stress test” period filled with uncertainty.
From a macroeconomic transmission perspective, the core threat posed by Middle Eastern conflict to capital markets lies in this chain: “physical supply-chain disruption → energy-price surge → global inflation rebound → central banks forced to maintain tight policy → risk assets collapse.”
Chain-reaction analysis of capital markets
International crude oil: The absolute epicenter of the storm
Chain reaction: The Middle East controls the world’s oil lifeline—especially critical chokepoints like the Strait of Hormuz. Once conflict risks broaden or threaten major producers, markets instantly price in a “geopolitical risk premium,” triggering sharp, pulse-like spikes in Brent and WTI crude.
Deeper impact: Oil is the mother of all industries. Its surge raises costs across aviation, logistics, and chemicals—and transmits “imported inflation” directly to recently stabilized global consumer price indices (CPI).
Precious metals (gold/silver): The traditional ultimate safe haven
Chain reaction: Amid war, geopolitical turmoil, and fears of runaway inflation, capital instinctively flows into gold. Gold prices typically gap up sharply before and immediately after conflict onset—reaching new cyclical or even all-time highs. Silver, with its dual industrial role, exhibits greater volatility than gold.
Deeper impact: Note that gold’s surges are often sentiment-driven. Once the situation clarifies—even if fighting continues—risk aversion fades, and gold prices frequently reverse sharply, reverting to valuation anchored by real U.S. interest rates and the dollar.
U.S. equity markets: The inflation specter and “valuation compression”
Chain reaction: War is broadly negative for U.S. equities. The VIX volatility index spikes sharply; capital rotates out of high-valuation tech stocks (e.g., AI and semiconductors) into defensive sectors such as defense, traditional energy, and utilities.
Deeper impact: What U.S. equities truly fear isn’t Middle Eastern artillery—but the inflation rebound it triggers. If soaring oil prices sustain elevated U.S. CPI, the Fed may delay rate cuts—or even resume hiking. Such macro liquidity tightening delivers heavy valuation blows to tech stocks, especially the Nasdaq.
Crypto markets: Liquidity drain on high-risk assets
Chain reaction: Though Bitcoin touts itself as “digital gold,” its actual performance during genuine geopolitical crises—including the early phase of the Russia-Ukraine conflict and recent Middle Eastern escalations—has mirrored that of a “hyper-volatile Nasdaq.”
Deeper impact: In response to war-related panic, Wall Street institutions prioritize selling the most liquid, highest-risk assets to raise cash—crypto markets are often first in line for selloffs. Meanwhile, altcoins face severe liquidity crunches. However, should conflict trigger localized fiat currency collapse or disrupt traditional banking systems, crypto’s censorship-resistant, borderless transfer capabilities may attract selective risk-averse capital.
Comparing these three historical geopolitical conflicts, we can distill core principles for ordinary investors facing geopolitical crises:
- “Uncertainty” is the greatest killer: The most brutal equity declines almost always occur during the pre-war build-up and negotiation phases. Once hostilities commence—especially when the situation becomes predictable—equities tend to bottom and rebound. This validates Wall Street’s adage: “Buy to the sound of cannons.”
- The “bagholder trap” in commodities: In the pre-war and immediate post-outbreak phases, oil and gold often surge to irrational highs on panic alone. But unless physical supply is substantially and durably severed—as occurred in neither the Gulf nor Iraq Wars—prices typically halve rapidly after hostilities begin. Blindly chasing commodities here makes you the institutional bagholder.
- Distinguish “sentiment shocks” from “fundamental damage”: If a conflict is merely a sentiment shock—localized, lopsided in capability—equities fall sharply but rebound quickly. But if it causes lasting disruption to core supply chains—as the Russia-Ukraine conflict did to energy and food—it reshapes global inflation and interest-rate cycles through “inflation + tightening,” prolonging market pain significantly.
History never repeats itself exactly—but it always rhymes. As we observe current capital-market anomalies, we must calmly assess: Is this conflict merely temporary sentiment-driven panic—or a black swan capable of genuinely reshaping global inflation and interest-rate cycles?
Geopolitical maneuvering follows no rules: A ceasefire announcement late one night could vaporize highly leveraged long positions in seconds. In crisis, the cardinal rule remains: preserve principal.
Defense strategy in turbulent times: How should ordinary investors position themselves?
Under the dual shadows of war and inflation, the ordinary investor’s core objective must shift—from “pursuing high returns” to “preserving principal, hedging inflation, and mitigating tail risk.” We recommend restructuring your portfolio using the following “defense-then-counterattack” framework:
Strategy 1: Build a robust cash moat (20%–30%)
Action: Increase holdings of cash and cash equivalents (e.g., high-yield USD deposits, short-term Treasuries, money market funds).
Rationale: Liquidity is life during crisis. Holding ample cash ensures household quality of life remains unaffected by surging prices—and provides dry powder to buy quality assets after sharp market declines.
Strategy 2: Buy inflation “insurance” (10%–15%)
Action: Allocate modestly to gold ETFs, physical gold, or broad-based energy-sector ETFs.
Rationale: This allocation isn’t meant for outsized gains—but for hedging. If war-induced oil shortages and price spikes increase your living costs, gains in gold and energy equities help offset those expenses. Crucially: avoid full-position buying when headlines scream “war!”
Strategy 3: Consolidate and hold core equities (30%–40%)
Action: Sell high-leverage, unprofitable peripheral stocks; concentrate capital in broad-market ETFs (e.g., S&P 500) or mega-cap firms with strong, stable cash flows.
Rationale: Single-stock black swans multiply during war—e.g., sudden supply-chain collapse leading to bankruptcy. Broad-market ETFs let you ride national destiny and systemic economic resilience to hedge individual corporate fragility. Consistent dollar-cost averaging—ignoring short-term paper losses—often uncovers long-term “golden pits” amid crisis.
Strategy 4: “De-risk” crypto allocations (for Web3 users)
Action: Trim volatile altcoins and meme coins; consolidate holdings into Bitcoin (BTC) as a long-term base layer—or convert to USD stablecoins (USDC/USDT) deposited with top-tier, compliant platforms to earn yield. Once geopolitical risk is deemed contained and market liquidity recovers, allocate 10–30% of your crypto exposure toward meme coins to capture alpha, based on your personal risk appetite.
Rationale: Liquidity crises hit small-cap tokens hardest. Stablecoins offer both crisis-time safety and more flexible liquidity reserves than traditional banks.
Absolute red lines—never cross them
- Never use leverage: Geopolitics shifts in milliseconds—a ceasefire announcement can drop oil 10% instantly. In leveraged trading, you won’t survive the short-term quake to claim long-term victory; you’ll be liquidated first.
- Abandon the “war profiteering” mindset: Information asymmetry in capital markets is brutally harsh. By the time you decide to go long on an asset due to escalating conflict, Wall Street quant funds have likely already prepared to “take profits—sell the fact.”
Faced with macro-scale tremors, the ordinary person’s strongest weapons aren’t precise forecasts—but common sense, patience, and a healthy balance sheet.
Fire will fade; order will rebuild atop ruins.
At the peak of extreme panic, the most counterintuitive act is staying rational—and the most dangerous move is panic-selling. Remember the oldest maxim in investing: Never bet on the end of the world—because even if you win, no one will pay out.
And our deepest wish remains, above all: peace—conflict resolved, families reunited, and a world at peace.
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