Iran and geopolitical risk: what does the long view teach us?

We think it’s useful to look at events – and markets – from a historical perspective, at this time of market turbulence triggered by the US and Israeli attacks on Iran.

Most geopolitical shocks – including many with major political consequences – don’t result in large, lasting disruption to global markets.

To understand this, it’s helpful to consider a few examples from the long arc of history, as set out in the interactive table below.

Plucking a few examples from this table, the 9/11 terrorist attacks changed the geopolitical landscape forever. But despite an immediate vertiginous drop of 5% in the US S&P 500 stock index, the total drawdown – the cumulative fall over 11 trading days to the lowest point – was limited to 12%. This number is probably quite a lot lower than many people might guess. Moreover, there were only 31 days to a full market recovery: the eradication of the 12% drawdown.

Even the 1962 assassination of the most powerful man in the world, US President John F. Kennedy, did little to derail the US stock market. It dropped by 3% - but within a week, it had fully recovered.

Take the long view on geopolitical risk with our interactive table

Click on the pink cells to reorder the table, which shows the effect of different risks on the US stock market. Click through to see the second page.

Middle Eastern crises and markets

Looking to the Middle East specifically, it actually accounts for the most severe drawdown of all in our table: 44%. The event was the 1973-74 embargo by various Arab states on the sale of oil to the US, and seven other nations, in protest at their support of Israel in the Yom Kippur War. This reflects the global economy’s sensitivity to events in this region, the supplier of so much of the world’s oil.

By comparison, during the present conflict, the S&P 500’s drawdown so far has come to only 3% – with the trough (so far, at least) reached on Monday, 9 March. At the market’s close on Wednesday, 12 March, the index was down less than 1% on its pre-crisis level.

This partly reflects that the fact that the US economy is less sensitive to international oil prices than many others, such as Germany’s.

The drawdown of its Dax index was more than double, at 7%. And in afternoon trading on Thursday, 13 March, it was still 4.3% lower than before the Iran conflict began – an appreciable fall, but far from a major one.

One reason for the US equity market’s relative insensitivity is that, these days, the US is a net exporter of oil. By contrast, in the 1970s it was the world’s biggest importer.

1970s oil embargo vs 2026 Iran conflict

This somewhat more muted stock market response – up till now – also reflects the geopolitical differences. The contrast between the 1973-74 crisis then and the current crisis is instructive.

On the one hand, the attack on Iran has broadened into a wide-ranging conflict, with Iranian counterattacks on land against a large number of countries, and on sea against shipping.

So far, at least, Iran hasn’t succeeded in severely disrupting other countries’ production capabilities. At the time of writing, there’s enough oil coming out of the ground to satisfy demand.

However, shipping through the Strait of Hormuz, a narrow channel between Iran and Oman, is a crucial transportation bottleneck. Before the conflict began, around one-fifth of global oil and (liquefied natural) gas supplies are shifted through it daily, so a prolonged closure would be extremely disruptive.

On the other hand, Iran itself is highly dependent on oil revenue. And President Trump will be keenly aware that higher inflation could weigh on the performance of the Republican Party in November’s mid-term elections. So the vested interests in keeping shipping lanes open – or eventually seeking an end to the conflict – suggest that any blockage should be short-lived.

Markets are sensitive to these considerations. For that reason, they responded most positively to comments by US President Donald Trump on Monday, 9 March, suggesting that he saw the end of hostilities approaching.

That said, we’re far from complacent – and our determination to avoid complacency, as investors, is partly why clients entrust their money to us.

Protecting against geopolitical risk

The most consequential geopolitical shocks, in market terms, are inflationary. These include the 1973-4 oil embargo oil shocks and the 2022 full-scale Russian invasion of Ukraine. Because these shocks are inflationary, long-dated conventional fixed income investments (bonds) don’t provide the same protection as they have during more typical disinflationary economic shocks. These are shocks that reduce inflation, such as recessions.

We have for a while regarded the prospect of higher and more volatile inflation, in part because of geopolitical issues, as a risk to economic and financial stability. To prepare for this, we have for a while recommended that portfolios include:

•    Shorter ‘bond durations’. That means more money in shorter-dated bonds – those with fewer years to run. It means less in longer-dated bonds. That’s because they could be hit hardest by higher actual and expected inflation, as their prices are more sensitive to the change in central banks’ interest rates.
•    ‘Diversifiers’: investments that make portfolios more resilient, by behaving differently to other client investments. These include gold and other strategies that tend to perform better in inflationary environments. This category also encompasses funds able to capture returns from increased market volatility.
•    A good balance across assets. This means maintaining a meaningful exposure to equities, while staying mindful that slower growth could weigh on returns.
•    Within equities, an overall mix that has many quality, highly profitable companies most likely to withstand spikes in inflation.

We set our approach to geopolitical risk in our annually updated Peace of Mind in a Dangerous World report.