Geopolitical Shocks and Markets: What Moves First and Why It Matters for Investors

Energy markets were the first and most forceful point of impact. Brent crude oil prices rose from US$72 a barrel to US$100 as supplies through the Strait of Hormuz were disrupted. The disruption extended beyond crude when Qatar declared force majeure on a portion of its liquefied natural gas (LNG) exports, pushing European natural gas prices sharply higher.

Energy markets moved first and carried the most information. By the time equities sold off in a meaningful way, oil had already repriced the shock. This is a recurring pattern: in conflicts that threaten supply, energy markets adjust immediately while equity markets follow, but with a lag and often with more noise.

Equity markets did not move in unison. The S&P 500 declined modestly and recovered steadily from mid-March onwards, reflecting the US economy’s relative insulation from direct energy supply risk.

India’s Nifty 50 told a different story. It fell about 11 per cent within a few trading sessions, reached its lowest point during the Strait of Hormuz’s closure, and had yet to recover to pre-conflict levels by the end of the observation window. This was not incidental. India’s structural position as one of the world’s largest oil importers means that an energy supply shock and higher prices directly impact its import bill, current account balance, and domestic inflation trajectory.

In practice, emerging markets are frequently grouped in portfolios, yet their sensitivity to energy prices varies widely. When evaluating emerging market exposure, energy import dependence is not a secondary consideration. In episodes like this one, it becomes the primary determinant of drawdown severity and recovery speed.

Gold held consistently above pre-conflict levels through the most uncertain phase of the period, easing only as equities began stabilising in mid-March. This suggests that while uncertainty was real and sustained, markets were not pricing in a full systemic breakdown. Gold served as a reliable barometer of underlying investor anxiety, which is precisely the role a well-constructed hedge is meant to play.

The market response across the observation window unfolded in three phases: cautious alertness in the immediate aftermath of the airstrikes, peak fear through the first two weeks of March as supply disruptions materialised, and gradual stabilisation as the conflict narrative settled and supply rerouting had begun.

Each phase mapped closely onto specific conflict developments, confirming that markets were responding to substantive, supply-relevant events rather than sentiment noise. Investors who could distinguish between these phases in real time were better able to avoid impulse selling at peak stress and to re-enter as volatility compressed.

The conflict reinforces several principles. Energy supply infrastructure is the critical variable: when a geopolitical shock threatens a major choke point such as the Strait of Hormuz, its impact on broader markets is fast, broad and asymmetric. Portfolios with explicit exposure to supply-route risk need to account for this mechanism before a crisis, not during one.

Not all equity markets are equally vulnerable. Investors holding significant emerging market allocations in countries with high energy import dependence should routinely stress-test those positions against oil price scenarios.

Safe-haven positioning is most effective when it is pre-emptive. Gold’s steady performance during this period rewarded investors who held it as a strategic allocation, rather than those who sought it reactively once fear had already peaked.

Geopolitical risk events tend to follow a mean-reverting pattern once the acute phase passes, but that reversion is uneven across assets. Residual uncertainty lingers longest in the assets most structurally connected to the conflict’s economic consequences. Position sizing and exit timing need to reflect this asymmetry.