Geopolitical Shocks: How Wars, Sanctions and Trade Conflicts Move Markets

When a shock hits, investors don't yet know how big it will be, so they reduce risk. A typical first day looks like this: shares fall, especially in the region affected; government bond yields fall as money moves to safety; the dollar, Swiss franc and often the yen strengthen; gold rises; and oil jumps if supply could be at risk. The VIX, a measure of expected volatility, rises.

This first move prices possibilities. Over the following days, markets narrow those possibilities down, and prices adjust to what actually happens.

Energy and commodities

The most common channel. A conflict in or near a major producer, or a threat to a shipping route like the Strait of Hormuz, raises oil and gas prices, which feeds into inflation everywhere. See Oil and Energy Shocks.

Trade routes and supply chains

Attacks on Red Sea shipping from late 2023 forced many container ships to sail around southern Africa instead of using the Suez Canal, adding one to two weeks to journeys between Asia and Europe and pushing up freight costs.

The financial system

After Russia invaded Ukraine in 2022, Western governments froze around $300 billion of Russia's central bank reserves and cut several Russian banks off from the SWIFT payments network. Many economists link the record central bank gold buying that followed to that decision: gold held at home can't be frozen by another country.

Trade policy

Tariffs are taxes on imports. They raise prices for buyers, invite retaliation, and lead companies to move supply chains, which takes years. Their market impact depends on size and surprise.

• 1990, Iraq invades Kuwait: oil doubled and the S&P 500 fell about 20% between July and October as the US slipped into recession. A shock that hit the real economy through energy.
• 2001, September 11: US markets closed for four trading days. The S&P 500 fell about 12% in the week after reopening, then regained its pre-attack level within about two months.
• 2003, invasion of Iraq: shares had fallen during the build-up, then rallied once the invasion began and the uncertainty lifted.
• 2022, Russia invades Ukraine: energy and food prices surged, Europe faced a gas crisis, and sanctions reshaped commodity trade. The effects lasted years, because the shock ran through energy and inflation.
• April 2025, US tariffs: sweeping new tariffs announced on 2 April sent the S&P 500 down about 10% in two trading days. When most were paused a week later, it rose 9.5% in a single day, one of its largest daily gains on record.

• Does it threaten physical supply, of oil, gas, food, chips or shipping capacity?
• How large is the affected economy or market, and how connected is it to the rest of the world?
• Will governments or central banks respond, with sanctions, subsidies or rate changes?
• Is the risk already priced? Markets often move most during a build-up, and less when the event itself happens.
• Are safe havens behaving normally? If gold and the dollar rise together, investors are seeking safety; if bonds fall too, inflation fear may be dominating.