War reveals ruins to the world, but capital only watches prices.

As artillery flames reignite across the Middle East, colleagues in Dubai report airstrikes and air raid alerts. The sky torn by missiles symbolizes humanity’s uncertain fate in the face of the unknown.

Meanwhile, on an invisible timeline, global financial markets have already begun recalculating: where will oil prices peak? Will gold continue its ascent? When will the stock market bottom out and rebound?

Capital shows no sympathy, nor does it rage. It simply performs one cold calculation—pricing uncertainty. To most, it is invisible, incomprehensible, logically ruthless and rhythmically merciless.

Yet in times of turmoil, understanding capital’s mechanics and risk-pricing logic may be the last line of defense between ordinary people and the tides of history. Looking back at human geopolitical conflicts and financial history, you’ll find a near-unbroken pattern: in the face of war, capital markets always reenact the same script—and over 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, to the Iraq War in 2003, to the Russia-Ukraine conflict in 2022, the script unfolds identically each time. These three globally impactful geopolitical crises illustrate the pricing dynamics of capital markets across three phases: the incubation phase, the outbreak phase, and the clarity phase.

Financial markets are fundamentally a machine for discounting expectations. During the incubation phase, fear of supply disruption sends crude oil and gold soaring, while global equities plunge off a cliff. Yet Wall Street holds a bloody rule of thumb: “Buy to the sound of cannons.”

Once the first cannon fire erupts (or the situation clarifies), the greatest uncertainty is resolved. Safe-haven assets typically peak rapidly and retreat, while equities complete a deep V-shaped reversal at the point of despair. War may still rage—but capital’s panic has ended.

The following is a deep analysis of capital market shifts during these three historical events:

1. Gulf War (1990–1991): The Classic "V-Shaped Reversal" and Crude Shock

This war stands as a textbook case in modern financial history for studying geopolitical shocks, perfectly illustrating the principle of “buy on expectation, sell on fact.”

· Incubation Phase (August 1990 – January 1991): Panic and Risk Aversion

Crude Oil Surge: After Iraq’s invasion of Kuwait, markets panicked over potential Middle Eastern crude supply disruptions. Within two months, international oil prices surged from around $20 per barrel to over $40—more than doubling.

Stock Market Collapse: Affected by rising oil prices and looming war clouds, the S&P 500 fell nearly 20% between July and October 1990.

· The Shoe Drops (January 17, 1991): Counterintuitive Market Shift

On the first day of Operation Desert Storm, led by U.S. forces, the market exhibited an extremely counterintuitive move: With the war unfolding overwhelmingly in favor of coalition forces, “uncertainty” vanished overnight.

Oil Plunge: Prices plunged on opening day—the largest single-day drop in history (falling over 30%).

Stock Market Rally: The S&P 500 surged that day, triggering a sharp V-shaped reversal. Within six months, it not only recouped all losses but also reached new record highs.

2. Iraq War (2003): Relief After Prolonged Decline

The 2003 Iraq War came amid lingering effects of the dot-com bubble burst and post-9/11 security anxiety. Market reactions reflected more a sense of “better a short pain than a long one”—a release from prolonged stress.

· Incubation Phase (Late 2002 – March 2003): Slow Bleeding

For months of diplomatic brinkmanship and military buildup, capital markets behaved like startled birds. The S&P 500 steadily declined, while global capital fled en masse into gold and U.S. Treasuries due to risk aversion.

Crude oil, driven by war expectations and strikes in Venezuela, slowly climbed from $25 to nearly $40.

· The Shoe Drops (March 20, 2003): Bad News Is Good News

Remarkably, the absolute market bottom occurred just one week before hostilities began (around March 11, 2003).

When missiles finally struck Baghdad, the market interpreted it as “bad news fully priced in.” Equities then surged rapidly, launching a four-year bull run. Gold and other safe-haven assets cooled quickly as the war progressed smoothly.

3. Russia-Ukraine Conflict (2022): Supply Chain Disruption Leading to "Super Stagflation"

Differing from the previous two Middle Eastern wars—where the U.S. achieved overwhelming victories with minimal long-term damage to global supply chains—the Russia-Ukraine conflict had deeper, heavier impacts and altered the macroeconomic fundamentals.

· Crisis Onset (February 2022): Epic Commodity Storm

Russia is a global leader in energy and industrial metals; Ukraine is the “breadbasket of Europe.” Following the conflict’s outbreak, Brent crude briefly surged past $130/barrel; European natural gas prices multiplied several times; wheat, nickel, and other commodities hit record highs.

· Sustained Impact: The "Double Kill" of Inflation and Tightening

Equities and Bonds Fall Together: The most devastating market effect of the Russia-Ukraine conflict was shattering the fragile post-pandemic global supply chain, directly triggering the worst inflation in decades in the U.S. and Europe.

To combat this “imported inflation” caused by geopolitical war, the Federal Reserve was forced into the most aggressive tightening cycle in history. This resulted in the rare “double whammy” in 2022—stocks fell and bonds fell. The Nasdaq Index plummeted over 30% that year.

Deadly Delusion: Never Try to Profit from War

Let’s bring the timeline back to reality.

The sudden escalation in the Middle East has once again thrust global capital markets into a high-stress, uncertain “pressure test” phase.

From a macroeconomic transmission perspective, the core threat of Middle East conflict to capital markets lies in: “physical supply chain disruption → energy price surge → global inflation rebound → central banks forced to maintain tight policy → risk asset collapse.”

Chain Reaction Analysis in Capital Markets

1. International Crude Oil: The Absolute Epicenter

Chain Reaction: The Middle East controls the lifeblood of global crude (especially key chokepoints like the Strait of Hormuz). If conflict escalates or threatens major oil producers, markets immediately factor in “geopolitical risk premium.” This causes a pulse-like spike in Brent and WTI crude within days.

Deep Impact: Crude is the foundation of industry. Price surges raise costs across aviation, logistics, and chemical sectors—and transmit directly into “imported inflation,” threatening global price indices (CPI) that had just stabilized.

2. Precious Metals (Gold/Silver): The Traditional Ultimate Safe Haven

Chain Reaction: In times of war, geopolitical unrest, or potential hyperinflation, capital instinctively flows into gold. Prices often gap up at conflict onset, hitting interim or even all-time highs. Silver, with industrial use, exhibits higher volatility than gold.

Deep Impact: Note: Gold’s surge is often emotion-driven. Once the situation clarifies (even if fighting continues), risk-off sentiment fades, and gold is prone to sharp pullbacks—reverting swiftly to pricing governed by real U.S. interest rates.

3. U.S. Equity Markets: The Ghost of Inflation and "Valuation Kill"

Chain Reaction: War is generally bearish for U.S. equities. The VIX index spikes rapidly, prompting capital to flee high-multiple tech stocks (e.g., AI, semiconductors) and flow into defensive sectors like defense, traditional energy, and utilities.

Deep Impact: What U.S. equities fear most isn’t Middle Eastern gunfire—it’s inflation rebound triggered by gunfire. If oil spikes push CPI persistently high, the Fed must delay rate cuts—or even hike again. This tightening of monetary liquidity inflicts heavy valuation pressure on tech stocks, especially those represented by the Nasdaq.

4. Crypto Markets: Liquidity Drain for High-Risk Assets

Chain Reaction: Despite Bitcoin’s “digital gold” narrative, in past real geopolitical crises (e.g., early stages of Russia-Ukraine war, escalation in the Middle East), crypto markets performed more like a highly volatile Nasdaq index.

Deep Impact: During war panic, Wall Street institutions prioritize selling liquid, high-risk assets for cash—crypto is often the first target, suffering sharp declines. Altcoins face liquidity drought. However, when local fiat collapses or traditional banking systems are blocked, crypto’s “censorship resistance and borderless transfer” attributes attract some risk-off capital.

Comparing these three historical geopolitical conflicts, we can distill core principles for ordinary investors navigating crisis:

1. "Uncertainty" Is the Greatest Killer: The sharpest equity drawdowns almost always occur during the pre-war incubation and negotiation phase. Once war begins (especially when the trajectory becomes predictable), equities often bottom and reverse sharply. This confirms the Wall Street adage: “Buy when cannons roar.”

2. The "Pump-and-Dump" Trap in Commodities: Before and during early war phases, crude and gold often soar to absurd highs due to panic. But if physical supply isn’t permanently severed (unlike in Gulf and Iraq Wars), prices crash after hostilities begin. Chasing commodity highs blindly makes you easy prey for institutional players.

3. Distinguish Between "Emotional Shock" and "Fundamental Damage": If war is merely emotional shock (e.g., localized, lopsided conflict), equities fall fast and recover quickly. But if war disrupts core supply chains (e.g., Russia-Ukraine conflict causing energy and food crises), it reshapes global pricing anchors via inflation and rate hikes—leading to prolonged market pain.

History doesn’t repeat itself exactly, but it rhymes. When observing current capital movements, we must calmly assess: Is the current conflict merely temporary panic—or will it truly reshape the global inflation and interest rate cycle as a black swan?

Geopolitical maneuvering defies predictability. One late-night ceasefire statement can instantly vaporize leveraged long positions. In crisis, the cardinal rule is always preserving principal.

Defensive Formation in Turbulent Times: How Ordinary People Should Move

Under the dual shadow of war and inflation, the ordinary investor’s core goal must shift from chasing high returns to safeguarding capital, hedging against inflation, and insulating against tail risks. We recommend restructuring your portfolio using this “defensive-offensive” formation:

Strategy 1: Build a Cash Moat (20%-30%)

· Action: Increase holdings in cash and cash equivalents (e.g., high-yield USD deposits, short-term Treasuries, money market funds).

· Logic: In crises, liquidity is life. Holding ample cash ensures household living standards remain stable despite soaring prices—and gives you the ammunition to “buy the dip” when markets crash.

Strategy 2: Buy Inflation “Insurance” (10%-15%)

· Action: Allocate modest portions to gold ETFs, physical gold, or a small stake in broad-based energy ETFs.

· Logic: This portion isn’t meant to generate big gains—it’s for hedging. If war causes crude shortages and prices explode, the cost increase in your daily life can be offset by gains in gold and energy sectors. Remember: never go all-in on headlines.

Strategy 3: Constrict Frontlines, Hold Core Equity (30%-40%)

· Action: Sell high-debt, unprofitable marginal stocks; concentrate capital in broad-based index ETFs (e.g., S&P 500) or firms with strong cash flows.

· Logic: During war, individual stocks face massive black swan risks (e.g., sudden supply chain collapse leading to bankruptcy). Embracing broad indices uses national economic resilience and systemic strength to hedge against corporate fragility. As long as you stick to dollar-cost averaging and ignore short-term fluctuations, crises often create long-term “golden holes.”

Strategy 4: De-risk Crypto (for Web3 Users)

· Action: Reduce exposure to high-volatility altcoins and meme coins; consolidate capital into Bitcoin (BTC) as a long-term base position, or convert to USD stablecoins (USDC/USDT) deposited in top-tier compliant platforms to earn spot yields. Once geopolicy risk is deemed manageable and market liquidity returns, allocate 10%-30% of capital to meme coins based on risk appetite to capture alpha opportunities.

· Logic: Liquidity crunches from war affect small-cap coins more severely. Stablecoins serve both as a safe haven and provide more flexible liquidity reserves than traditional banks.

Absolute Red Lines to Never Cross

1. Never Use Leverage: Geopolitics changes in seconds. A ceasefire announcement can trigger a 10% oil drop. In leveraged trading, you may not survive long enough to see the eventual victory—your account could blow up in a short-term shock.

2. Abandon the “War Profiteer” Mentality: Information asymmetry in capital markets is brutal. By the time you decide to go long on an asset due to escalating conflict, Wall Street quant desks may have already prepared to “take profits and sell facts.”

In the face of macro tremors, an ordinary person’s strongest weapon is not precision forecasting—but common sense, patience, and a healthy balance sheet.

Wars will eventually end. Ruins will be rebuilt into order.

At the peak of extreme panic, the most anti-human action is remaining rational; the most dangerous move is panicking and liquidating everything. Remember the oldest maxim in investing: Never bet on doomsday—even if you win, no one will pay you out.

And our deepest wish remains: peace restored, families reunited after forced separation, a world at peace.