Renewed Conflicts: How Middle East Conflicts Are Reshaping the Risk Premiums for Gold and Crude Oil

Author: 137Labs

The sudden escalation of the situation in the Middle East has once again made energy supply security a core variable in global markets. Risks in the Strait of Hormuz, rising shipping and insurance costs, and expectations of potential supply disruptions have rapidly pushed up the risk premium for crude oil; simultaneously, a resurgence of risk aversion and rising inflation expectations have driven gold prices higher. This article systematically examines how war affects the pricing logic of oil and gold prices through three pathways: supply shocks, inflation transmission, and contraction in risk appetite. It also analyzes the performance differences of risk assets such as Bitcoin during periods of high uncertainty, drawing on historical conflict experience and the current macroeconomic environment, and explores key variables and asset allocation directions for the future market.

I. Macroeconomic Background of Rising Oil and Gold Prices: Risk Premium Repricing

The simultaneous rise in international oil and gold prices in early 2026 was not an isolated event. From supply and demand structures and inflation expectations to the accumulation of geopolitical risk premiums, the upward price movement already had an inherent basis.

Regarding crude oil, the global supply system is already in a fragile balance. OPEC+ continues its production cuts, the growth rate of US shale oil production is slowing marginally, and global inventories are at relatively low levels. On the demand side, the recovery of Asian economies combined with seasonal restocking keeps the crude oil market in a tight balance. Under this structure, any potential risk of supply disruptions will be rapidly amplified by the market.

Regarding gold, continued central bank gold purchases, a phased return of funds to ETFs, and a market reassessment of the medium- to long-term inflation center have collectively pushed up the central price of gold. The high level of the global uncertainty index has further strengthened gold's safe-haven appeal.

Therefore, before the outbreak of geopolitical conflict, oil and gold prices already had the structural conditions to rise.

II. Escalation of Conflict in the Middle East: Supply Shocks and Risks of "Oceanic Oil Valves"

Tensions in the Middle East escalated rapidly following Israel's military strikes against Iranian targets. The core of the conflict lies not only in the military sphere, but also in its geographical location—a vital chokepoint for global energy transport.

The Strait of Hormuz handles about one-fifth of the world's maritime crude oil trade. If shipping is disrupted or insurance costs surge, even without a substantial supply disruption, the risk premium will quickly be priced into futures prices. The market pre-priced in scenarios such as tanker attacks, damage to refining facilities, and port closures, causing oil prices to jump.

Meanwhile, attacks on energy facilities and shipping disruptions further reinforced the narrative of "supply vulnerability." Prices of natural gas, refined petroleum products, and related derivatives fluctuated in tandem. Rising oil prices fueled inflation expectations, causing temporary volatility in the US Treasury yield curve and the US dollar index, putting pressure on global risk assets.

The military scale of the conflict itself is still difficult to determine, but the market is significantly more sensitive to supply chain uncertainties than to assessments of the conflict itself.

III. Asset Transmission Mechanism: From Energy Shocks to Risk Appetite Contraction

The impact of war on precious metals and oil is transmitted primarily through three pathways:

1. Supply shock path

Crude oil is a fundamental energy source for the real economy. Rising transportation costs, anticipated inventory declines, and increased insurance premiums are all quickly reflected in futures prices. Increased energy costs further transmit to industrial metals, agricultural products, and global shipping indices.

2. Inflation Expectation Path

Rising oil prices suggest potential downward pressure on future CPI. The market is beginning to reassess central bank policy paths. If expectations of rising inflation strengthen, lower real interest rates will support gold prices.

3. Risk Preference Path

Geopolitical conflicts are typically accompanied by increased stock market volatility, with funds shifting towards highly liquid and safe-haven assets. Gold benefits significantly, and the US dollar may also strengthen in the short term due to safe-haven demand. Overvalued risk assets, on the other hand, face valuation compression.

IV. Real-time Performance of Gold and Crude Oil

Following the escalation of the conflict, crude oil prices rose rapidly, with intraday gains significantly widening. Market focus shifted to transportation security and the integrity of energy infrastructure. Significant risk hedging activity emerged at the trading level, with volatility indicators rising accordingly.

Gold prices continued their upward trend. Institutional investors increased their safe-haven exposure, boosting demand for physical gold and ETFs. Silver, another precious metal, also strengthened, but its price action was more volatile than gold's.

Market pricing logic exhibits typical characteristics of a "war premium":

Energy: Supply risk premium

Gold: Safe haven and expectations of real interest rates

Stocks: Risk Discount

Bonds: Rebalancing of Policy Expectations

V. Historical Comparison: How Wars Have Changed the Volatility of Commodities and Crypto Assets

Historical experience shows that every major geopolitical conflict in the Middle East has led to periods of sharp fluctuations in energy and precious metal prices.

• During the Gulf War, oil prices surged briefly before falling back as the situation became clearer.

• In the early stages of the Iraq War, gold prices rose, putting pressure on risk assets.

• In 2019, Saudi oil refining facilities were attacked, causing oil prices to surge in a single day.

Following the outbreak of the Russia-Ukraine conflict, both energy and gold prices jumped, driving up global inflation.

The common point is:

In the early stages of the conflict, the market generally overpriced the worst-case scenario; subsequently, as information transparency improved, price fluctuations became more rational.

VI. Bitcoin and Crypto Assets: Safe-haven Assets or High-beta Risk Assets?

In this round of conflict, the price of Bitcoin fluctuated significantly. Unlike gold's one-way safe-haven property, Bitcoin's reaction was more complex.

Research suggests that when geopolitical risks rise, Bitcoin may move in the same direction as risk assets in the short term—that is, it may pull back in tandem with a decline in risk appetite. However, in regions with rising capital controls or currency devaluation pressures, Bitcoin may also be seen as a tool for capital transfer, leading to a structural increase in demand.

Statistically, Bitcoin exhibits a periodic correlation with energy prices and geopolitical risk indices, but this relationship is not stable or linear. Its price is more significantly influenced by the global liquidity environment and the US dollar's performance.

Therefore, in the context of war, Bitcoin is closer to a "high-volatility risk asset" than a traditional stable safe-haven tool.

VII. Key Variables in the Current Market

The key factors that will influence the market next are three:

1. Whether the conflict will spill over: If the situation is limited to a limited strike, the oil price risk premium may gradually decline; if it involves a blockade of the Strait or the involvement of multiple countries, the supply shock will escalate significantly.

2. Changes in shipping and insurance costs: The actual degree of logistical disruption determines the central level of energy prices.

3. Inflation and Policy Path: If energy prices remain high, the pace of central bank interest rate cuts may be delayed.

In an environment of high uncertainty, asset pricing logic reverts to prioritizing safety. Gold benefits from rising risk premiums and changes in expected real interest rates; crude oil depends on the actual extent of supply disruptions; and Bitcoin seeks a new balance between risk appetite and liquidity.

VIII. Conclusion: The Cyclical and Structural Nature of War Premiums

Precious metals and oil have never been merely commodities; they amplify global risk sentiment. War brings not only supply and demand shocks but also challenges to the stability of the global financial system.

History shows that the sharp price fluctuations in the early stages of a war often include an emotional premium; the trend in the middle and later stages depends on the degree of fundamental recovery and the strength of policy response.

In the current environment, the market is reassessing three core issues:

Will there be a substantial disruption to energy supply?

Will inflation rebound?

Is global risk appetite entering a contractionary cycle?

These three factors will determine the price paths of gold, crude oil, and Bitcoin in the coming months.

War not only changes the geopolitical landscape, but also reshapes the risk boundaries of asset prices.

(This article represents only the author's personal views and does not constitute any investment advice.)