Middle East Conflicts Through a Historical Lens
Geopolitical tensions are once again at center stage for global investors. We looked at seven conflicts in the Middle East, since 1970, in which the U.S. became involved to some degree (see exhibit below). While markets were volatile around these events, in six of the seven we examined, oil-price surges were not sustained and the U.S. equity market recovered within the year.
Geoeconomics more often than geopolitics drove oil-price swings
Most of the conflicts we identified did not trigger sustained oil-price surges, with the exception of the 1973 Yom Kippur War and subsequent oil embargo. The First Gulf War caused a spike, but prices later retreated. Other key geopolitical events, however, such as the late-1970s Iranian Revolution and the 2022 Russian invasion of Ukraine resulted in significant oil-price increases. Other, often more-pronounced, oil-price movements stemmed from geoeconomic forces: rising energy demand from emerging markets in the mid-2000s, the 2008 global financial crisis, 2015 supply glut and 2020 COVID-19 pandemic.1
The impact on US equities was usually mild
In six of the seven conflicts, equities rebounded within a year. Returns after an event sometimes underestimate the loss, however, as markets may have declined in anticipation of the trigger event (the Second Gulf War is an example). We therefore calculated the maximum drawdown around the event.2 Deeper drawdowns often coincided with unrelated economic shocks: The First Gulf War overlapped with a U.S. recession and the leveraged-buyout crisis; the Qasem Soleimani drone strike preceded the COVID-19 pandemic. The exception — the Yom Kippur War and oil embargo — contributed to a prolonged downturn. That decade saw equities weighed down by the oil crisis, rampant inflation, weak growth and rising rates.
For investors, the key takeaway is perhaps that geopolitics matter most when they exacerbate existing macroeconomic shifts.
Data from between January 1970 and June 2025. Based on crude-oil prices: West Texas Intermediate Crude, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average and the MSCI USA Index. Source: U.S. Energy Information Administration and U.S. Bureau of Labor Statistics retrieved from FRED, Federal Reserve Bank of St. Louis, MSCI
Maximum drawdown and returns are based on the MSCI USA Index.
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1 Aiden Reiter, “Why is the oil price not surging?” Financial Times, June 16, 2025.
2 To calculate the maximum drawdown, we identify the peak level in the three months preceding the event and the bottom level in the three months following the event, and then calculate the return between those two levels.
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