War, war has never changed... How will the macro market behave?

On February 28, 2026, a joint U.S.-Israel operation killed Iran’s Supreme Leader Khamenei, causing immediate turbulence in global capital markets. This isn’t the first time markets have experienced such shocks, nor will it be the last. Forty years of Middle East conflict history reveal a highly consistent pattern: while the form of war changes, market reactions remain unchanged. Understanding this pattern is essential for preserving and growing capital in the current environment.

Hours to Days: Instinctive Flight to Safety

Crude oil reacts the fastest and most dramatically among all assets. Even the threat of a blockade in the Strait of Hormuz, rather than an actual closure, can trigger a sharp spike in oil prices. About 20% of global oil trade passes through this route, and markets price in tail risks rather than baseline scenarios.

Gold begins to rise within minutes after crude, serving two distinct functions: as a hedge against geopolitical uncertainty and as a store of value against energy-driven inflation. Silver often follows gold initially, but because of its industrial use, once the conflict evolves into an economic recession, silver’s performance will be notably weaker than gold. This divergence has been clear in past Middle East conflicts.

On the first day of conflict, U.S. stocks typically fall 1% to 3%. IMF research estimates the average one-month stock market decline after geopolitical shocks is about 1%. However, sector performance varies significantly: defense stocks may rally against the trend, and energy stocks tend to follow oil prices. But the VIX index, which measures market fear, will likely spike sharply. Historically, within 48 hours of major Middle East conflicts, the VIX has surged into double digits.

Days to Two Weeks: Pricing the Containment or Escalation

Historical experience shows that if shipping and export systems return to normal within one to two weeks, oil prices tend to retrace most of their gains. Cases in 2003 and 2019 demonstrate that as long as supply remains intact, risk premiums dissipate quickly. Equities usually stabilize within two to three weeks, and Bitcoin and crypto markets tend to rebound as risk sentiment improves, often with greater resilience.

However, if high oil prices persist beyond two to four weeks, market logic shifts from trading to macroeconomic considerations. Sustained high oil prices mean rising input costs, which elevate future consumer price index (CPI) paths and systematically raise inflation expectations. At this point, gold’s upward case strengthens, and the role of cryptocurrencies begins to subtly change. Some funds may reconsider Bitcoin’s inflation hedge properties, but overall performance remains highly dependent on global risk appetite.

Weeks to Three Months: Macro Repricing

If the conflict persists, high oil prices will transmit into inflation. The Federal Reserve may face a dilemma: energy-driven inflation demands rate hikes, but economic slowdown calls for rate cuts. The risk of stagflation increases. Bond markets’ safe-haven logic begins to weaken, while gold continues to benefit from inflation hedging. Stock valuations become highly sensitive to interest rate expectations; if markets believe the Fed will need to maintain high rates longer due to inflation or stagflation risks, risk assets will come under pressure.

In this phase, crypto markets face dual forces. On one hand, tightening financial conditions and reduced liquidity may cause Bitcoin and tech stocks to decline together. On the other hand, fears of policy missteps or stagflation could lead Bitcoin to temporarily decouple from risk assets, moving more in tandem with gold. Therefore, in this third stage, crypto assets often undergo a reassessment, with their performance no longer solely following equities but depending on market confidence in monetary policy.

Over Three Months: Structural Reconfiguration

History shows a sharp divergence here. In containment scenarios, six out of seven major Middle East conflicts in the past 50 years saw U.S. stocks fully recover within 12 months, with buy-and-hold investors earning annual returns of 15% to 29%. After the Gulf War in 1991, the S&P 500 rebounded over 29% within a year; similarly, after the Iraq War in 2003, markets hit new highs within months.

In out-of-control scenarios, the precedent is 1973: the oil crisis caused the S&P 500 to fall nearly 50% from its peak, with runaway inflation and aggressive Fed rate hikes plunging the U.S. economy into deep stagflation, taking nearly a decade to fully recover. This is not just a distant warning but a real possibility embedded in the current scenario.

From a longer-term structural perspective, each major Middle East conflict leaves lasting marks on the global economy: a permanent increase in defense spending, accelerated energy independence, faster de-dollarization by central banks, and regionalized supply chains that create persistent structural inflation pressures. These forces accumulate slowly over years but can fundamentally alter the long-term return expectations of entire asset classes.

While the form of war may change, the market transmission sequence is highly repetitive: oil prices move first, followed by inflation, and finally central bank policy directions. What truly shifts asset trends are the data points weeks later, not the initial explosions. Don’t let emotions dominate your investments—understanding the historical pattern is key to navigating turbulent times safely.