36 years, 4 wars, 1 script: How does capital price the world in conflict?

Written by: Bitget Wallet

War leaves the world in ruins, but capital only cares about prices.

As gunfire reignites in the Middle East, colleagues in Dubai report bombings and air raid sirens; missiles piercing the sky symbolize humanity's uncertain fate.

Meanwhile, on another, unseen timeline, global financial markets have begun to recalculate: Where should oil prices rise? Will gold continue its upward surge? When will the stock market bottom out and rebound?

Capital shows no sympathy, nor does it feel anger. It simply does one thing calmly—pricing uncertainty. To most people, it is invisible, incomprehensible, logically cold, and relentlessly rhythmic.

But in turbulent times, understanding the logic of capital operations and risk pricing may be the last line of defense for ordinary people against the tide of history. Looking back at the history of human geopolitical conflicts and finance, you will find a pattern that has almost never changed: in the face of war, the capital market always repeats the same script, and in the past 36 years, this script has been fully played out four times.

What capital fears most is not conflict, but "waiting".

From the Gulf War in 1991 and the Iraq War in 2003 to the Russia-Ukraine conflict in 2022, the script always follows the same pattern. These three geopolitical crises with global influence have demonstrated the pricing pattern of the capital market in the "incubation period - outbreak period - clarity period".

Financial markets are essentially discounting machines for expectations. When conflicts are brewing, fears of unknown supply disruptions can drive oil and gold prices to record highs, while global stock markets plummet. However, Wall Street has a bloody rule: "Buy to the sound of cannons."

Once the first shot is fired (or the situation becomes clear), the greatest uncertainty is cleared up. Safe-haven assets tend to peak and fall quickly, while the stock market completes a deep V-shaped reversal from its lowest point. The war may still be ongoing, but the panic in capital markets has ended.

The following is an in-depth analysis of the changes in the capital markets during these three historical events:

1. The 1990-1991 Gulf War: The Classic "V-Shaped Reversal" and the Oil Price Shock

This war is a textbook case study in the history of modern finance for studying geopolitical impacts, perfectly illustrating the principle of "buy the expectation, sell the fact".

• The crisis incubation period (August 1990 - January 1991): Panic and risk aversion

• • Crude oil prices surged: Following Iraq's invasion of Kuwait, the market panicked and feared a disruption in Middle Eastern oil supplies. In just two months, international oil prices soared from around $20 per barrel to over $40, an increase of more than 100%.

  • Stock market crash: Affected by soaring oil prices and the shadow of war, the S&P 500 index in the United States plummeted by nearly 20% between July and October 1990.

• The shoe dropped (January 17, 1991): A counterintuitive market upheaval

• • On the first day that the U.S.-led Operation Desert Storm officially began, the market saw an extremely counterintuitive trend: because the war was progressing overwhelmingly, the "uncertainty" disappeared instantly.

  • Crude oil prices plummeted: Oil prices experienced one of the largest single-day drops in history on the day the war began (plummeting by more than 30%).

  • Stock market euphoria: The S&P 500 surged that day, followed by a sharp V-shaped reversal, not only recovering all its losses within six months but also reaching a new all-time high.

2. The 2003 Iraq War: A "Relief" After a Long and Steady Decline

The Iraq War in 2003, coupled with the lingering effects of the bursting dot-com bubble and the security anxieties following 9/11, led to a market reaction that reflected a sense of relief, believing that "a short, sharp pain is worse than a long, drawn-out one."

• The crisis brewing period (late 2002 - March 2003): A slow, painful process.

• • During the months-long diplomatic standoff and war preparations, capital markets were extremely volatile. The S&P 500 index continued its downward trend, and global capital flowed into gold and US Treasury bonds due to risk aversion.

  • Crude oil prices have slowly risen from $25 to nearly $40 due to factors such as war expectations and strikes in Venezuela.

• The dust has settled (March 20, 2003): The worst is over, and the good is in the end.

• • Ironically, the absolute bottom of the US stock market occurred a week before the start of the war (around March 11, 2003).

  • When the missiles actually landed on Baghdad, the market interpreted it as a "sell the news." The stock market subsequently surged, initiating a four-year bull market. Safe-haven assets like gold, however, cooled rapidly after the war progressed smoothly.

3. The 2022 Russia-Ukraine conflict: "Super Stagflation" triggered by supply chain disruptions

Unlike the previous two Middle East wars (in which the United States achieved a swift and overwhelming victory without causing long-term substantial damage to the global supply chain), the Russia-Ukraine conflict has had a more profound and severe impact on the capital market and has altered the underlying logic of the macroeconomy.

• Crisis Erupts (February 2022): An Epic Commodity Storm

• • Russia is a global energy and industrial metals giant, while Ukraine is known as the "breadbasket of Europe." Following the outbreak of the conflict, Brent crude oil prices briefly surpassed $130 per barrel; European natural gas prices soared several times over; and commodity prices such as wheat and nickel reached record highs.

• Ongoing impact: The "double whammy" of rebounding inflation and monetary tightening.

• • The stock and bond markets both fell: the most devastating market impact of the Russia-Ukraine conflict was that it completely shattered the fragile global supply chain after the pandemic, directly triggering the most severe inflation in Europe and the United States in 40 years.

  • To combat this "imported inflation" triggered by geopolitical conflicts, the Federal Reserve was forced to embark on its most aggressive interest rate hike cycle in history. This resulted in a rare "double whammy" in 2022 (stocks and bonds both fell), with the Nasdaq index plunging by more than 30% that year.

Deadly Illusion: Never Try to Profit from War

Let's rewind to reality.

The sudden escalation of tensions in the Middle East has once again plunged global capital markets into a period of "stress test" filled with uncertainty.

From the perspective of the macroeconomic transmission chain, the most critical threat of the Middle East conflict to the capital market lies in "physical supply chain disruption → soaring energy prices → global inflation rebound → central banks forced to maintain tightening → risk assets plummeting".

Chain reaction analysis of capital markets

1. International crude oil: The absolute eye of the storm

The chain reaction: The Middle East controls the lifeline of global oil production (especially key shipping lanes such as the Strait of Hormuz). If the conflict escalates or risks affecting major oil-producing countries, the market will immediately factor in a "geopolitical risk premium." This could lead to a short-term surge in both Brent and WTI crude oil prices.

Profound Impact: Crude oil is the lifeblood of all industries. Soaring oil prices will not only raise costs for the aviation, logistics, and chemical industries, but will also directly threaten the recently stabilized global Consumer Price Index (CPI) through "imported inflation."

1. Precious metals (gold/silver): the traditional ultimate safe haven

Chain reaction: In the face of war, geopolitical turmoil, and potential hyperinflation, funds will instinctively flow into gold. Gold prices typically gap up before and in the early stages of a conflict, reaching new highs, even historical highs; silver, due to its industrial properties, tends to be more volatile than gold.

Deeper Implications: It's important to note that gold price surges are often driven by sentiment. Once the situation becomes clearer (even if the conflict continues), safe-haven demand will subside, and gold prices are highly likely to experience a pullback after the initial surge, returning to a pricing logic dominated by the real interest rate of the US dollar.

1. US Stock Market: The Ghost of Inflation and Valuation Kill

Chain reaction: War is generally a negative factor for US stocks. The VIX (fear index) will surge rapidly, and funds will withdraw from overvalued technology stocks (such as AI and semiconductors) and flow into defensive sectors such as defense, traditional energy, and utilities.

Deeper Implications: What the US stock market fears most isn't the fighting in the Middle East, but rather the resulting inflationary rebound. If soaring oil prices lead to persistently high US CPI, the Federal Reserve will be forced to postpone interest rate cuts or even raise rates again. This tightening of macro liquidity will severely impact the valuations of technology stocks, particularly those on the Nasdaq.

1. Crypto Markets: Liquidity Drain on High-Risk Assets

Chain reaction: Despite Bitcoin's long-standing narrative of being "digital gold," in recent real geopolitical crises (such as the early stages of the Russia-Ukraine conflict and the escalation of the Middle East situation), the actual performance of the crypto market has been more like that of a "highly resilient Nasdaq index."

Deeper Implications: Faced with war panic, Wall Street institutions will prioritize selling off the most liquid and riskiest assets to raise cash, with the crypto market often bearing the brunt and experiencing a downturn. Simultaneously, altcoins will face liquidity shortages. However, when conflict triggers the collapse of fiat currencies in certain regions, or when traditional banking systems are disrupted, the "censorship-resistant and borderless" safe-haven attributes of crypto assets will attract some safe-haven funds.

By comparing three historical geopolitical conflicts, we can extract the core principles for ordinary people to cope with geopolitical crises:

1. Uncertainty is the biggest killer: the most devastating stock market crashes almost always occur during the preparatory and strategic phases before the outbreak of war. Once war actually begins (especially when the situation becomes predictable), the stock market often bottoms out and rebounds. This confirms the Wall Street adage: "Buy when the guns are roaring."

2. The "Buying the Sell-Off Trap" in Commodities: Before and at the beginning of a war, crude oil and gold prices are often driven to unbelievably high levels due to panic. However, if the war does not substantially and persistently disrupt physical supplies (as in the Gulf War and the Iraq War), prices will quickly plummet by half after the war begins. Blindly chasing high prices in commodities makes one an easy target for institutional investors to buy at the top.

3. Distinguishing between "emotional shocks" and "fundamental damage": If a war is merely an emotional shock (such as a localized conflict with a significant power imbalance), the stock market will quickly recover after a fall. However, if a war leads to a long-term disruption of core supply chains (such as the energy/food crisis triggered by the Russia-Ukraine conflict), it will alter the global pricing anchor of funds through "inflation and interest rate hikes," in which case the market's period of adjustment will be very long.

History doesn't simply repeat itself, but it often rhymes. When observing current capital flows, we need to calmly assess whether the current conflict is merely a temporary emotional panic, or a black swan event that will truly reshape the global inflation and interest rate cycle.

Geopolitical maneuvering is unpredictable; a ceasefire announcement late at night can wipe out highly leveraged positions bought at inflated prices instantly. In a crisis, the primary principle is always to preserve capital.

Defensive Formations in Turbulent Times: How Should Ordinary People Make Their Moves?

Under the dual shadows of war and inflation, the core objective for ordinary investors must shift from "pursuing high returns" to "preserving principal, protecting against inflation, and hedging tail risks." It is recommended to restructure assets according to the following "defensive counter-attack" strategy:

Strategy 1: Build a strong cash moat (accounting for 20%-30%)

• Action: Increase holdings of cash and cash equivalents (such as high-interest US dollar deposits, short-term treasury bonds, and money market funds).

• Logic: In times of crisis, liquidity is the lifeline. Having sufficient cash on hand not only ensures that your family's quality of life is not affected by soaring prices in extreme circumstances, but also gives you the funds to "buy the dip" in quality assets after a market crash.

Strategy 2: Buy inflation "insurance" (accounting for 10%-15%)

• Strategy: Allocate appropriate amounts to gold ETFs, physical gold, or a small amount to broad-based energy ETFs.

• Logic: The purpose of this portion of funds is not to make a fortune, but to hedge. If war leads to oil supply disruptions and soaring prices, the increased cost of living can be offset by the rise in gold and energy stocks. Remember: Do not buy in at the peak when headlines are everywhere.

Strategy 3: Shrink the battle lines and defend core interests (accounting for 30%-40%).

• Strategy: Sell off heavily leveraged, unprofitable stocks and concentrate funds in broad-based index ETFs (such as the S&P 500) or large companies with strong cash flow.

• Logic: During wartime, individual stocks face extremely high black swan risks (such as sudden supply chain disruptions leading to bankruptcy). Embracing broad-based indices means using the systemic resilience of the nation and the entire economy to hedge against the vulnerability of individual companies. As long as you persist with regular investment and ignore short-term losses, crises often create long-term "golden opportunities."

Strategy 4: "De-risking" of crypto assets (for Web3 users)

• Strategy: Appropriately reduce holdings of highly volatile altcoins and Meme coins; consolidate funds into Bitcoin (BTC) as a long-term core holding, or convert them into USD stablecoins (USDC/USDT) and deposit them into a leading compliant platform to earn flexible interest. Once geopolitical risks are deemed manageable and market liquidity returns, you can allocate 10-30% of your funds to invest in Meme coins, depending on your risk appetite, to capitalize on alpha opportunities.

• Logic: Liquidity crises triggered by war have a greater impact on small-cap cryptocurrencies. Stablecoins can serve as a safe haven during crises and provide more flexible liquidity reserves than traditional banks.

The red line that must never be crossed

1. Leverage is strictly prohibited: Geopolitics is constantly changing, and a ceasefire announcement can cause oil prices to plummet by 10%. In leveraged trading, you may not see long-term gains and could be wiped out in a short-term market crash.

2. Abandon the gambling mentality of "profiting from war": The information gap in the capital market is extremely cruel. When you decide to go long on a certain asset class because you see the war escalating, quantitative institutions on Wall Street are often already prepared to "take profits and sell the fact".

In the face of massive macroeconomic shocks, the most powerful weapon for ordinary people is not accurate prediction, but common sense, patience, and a healthy balance sheet.

The flames of war will eventually be extinguished, and order will always be rebuilt on the ruins.

At the height of extreme panic, the most counterintuitive thing to do is to remain rational, and the most dangerous action is to panic and liquidate all holdings. Remember the oldest adage in the investment world: never gamble on the end of the world—because even if you win, no one will pay you back.

Our greatest wish is ultimately for the conflict to end, for families separated by conflict to reunite, and for world peace to prevail.