How Military Conflict Affects Markets and What Long-Term Investors Should Know
As widely reported, the U.S. and Israel have launched military strikes against Iran, targeting its leadership, military assets, and nuclear infrastructure. Iran’s Supreme Leader has been confirmed killed, and Iran has responded with missile and drone attacks across the Middle East. President Trump has stated that the goal of the operation, called “Operation Epic Fury,” is regime change in Tehran, with strikes expected to continue for weeks and a number of U.S. troop casualties already reported.
The situation is changing quickly, and the safety of civilians and troops is the top priority. Still, investors naturally want to understand what this means for markets, oil prices, and their portfolios. History offers useful guidance: while specific events like this are impossible to predict, the fact that geopolitical crises happen regularly is not surprising. Well-structured portfolios are built to handle exactly this kind of uncertainty.
This Conflict Is Part Of A Longer Story
Tensions between the U.S., Israel, and Iran have been building for years. This latest escalation follows a monthlong U.S. military buildup in the region, failed nuclear negotiations, and earlier support for Iranian protesters. Key moments in this history include Iran’s 2019 drone strikes on Saudi oil infrastructure, the October 2023 Hamas attack on Israel, and last summer’s 12-day Israeli military campaign against Iran’s nuclear and missile programs. The current strikes, which include targeting Iran’s senior leadership, are broader in scope than past engagements — but history shows that such conflicts are not always a catalyst for lasting market moves.
What This Means For Oil Prices
The most direct way Middle East conflicts affect financial markets is through energy prices. Iran produces around 3 million barrels of oil per day and sits along the Strait of Hormuz — the world’s most important energy shipping route. According to the U.S. Energy Information Administration, roughly one-third of all seaborne oil exports pass through this waterway. Oil prices have already risen in response to the strikes, with WTI crude moving to the low $70s and Brent crude just under $80 per barrel.
That said, today’s oil prices remain well below the nearly $128 per barrel peak seen in 2022 when Russia invaded Ukraine. The U.S. is now the world’s largest oil and natural gas producer, which helps cushion the domestic economy from global supply disruptions. Oil prices are also notoriously difficult to predict — after Russia’s invasion of Ukraine, many expected prices to stay high for a long time, but they fell much sooner than expected. A similar pattern was seen after the U.S. operation in Venezuela earlier this year.
Why Staying Invested Matters
For long-term investors, the most important lesson from past geopolitical events is the value of staying invested. It is natural to feel uneasy when headlines describe military strikes and the possibility of a wider war. However, markets have navigated serious global crises before — from World War II to the Gulf War to the conflicts in Iraq, Afghanistan, Ukraine, and the Middle East — and have generally recovered over time, driven by underlying economic fundamentals.
It is also worth noting that Iran plays almost no direct role in most investment portfolios. The country has been under heavy economic sanctions for years, and its economy has suffered from severe inflation and a collapsing currency. Very few investors have meaningful exposure to Iran in their portfolios. While markets may see some short-term volatility as events continue to unfold, trying to time these moves has historically been counterproductive. Missing just a few of the market’s best trading days can significantly reduce long-term returns.
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