Oil Shocks and Market Performance in Past Geopolitical Events

1. 1 Pre-war price is taken as of 2–3 weeks before the war starts. This helps to stabilise prices and capture the full up-move in oil.
2. 2 The Iraq War continued until 2011. Only the initial phase of the war's start has been taken for the purpose of this analysis. Oil prices surged to $147 per barrel in July 2008 before collapsing to under $40 by December. Over $60 billion in speculative investment drove prices from $95 to $147 in the first half of 2008, while supply disruptions in Venezuela, Iraq, and Nigeria and surging demand from China and India exacerbated the spike.
3. 3 The Russia–Ukraine war remains ongoing; however, this analysis focuses only on the initial phase following the outbreak. The S&P 500 recovered to its pre-conflict levels within just 21 days, but subsequently entered a prolonged decline driven by the broader 2022 bear market, largely triggered by aggressive Federal Reserve rate hikes to curb inflation.
4. 4 The calculation for S&P 500 recovery is done based on how soon the index is able to recapture its level that was observed prior to the outbreak of the war.

Oil prices are often among the first to react when geopolitical tensions escalate, especially when major energy-producing regions are involved. During major geopolitical shocks such as the Gulf War, the Iraq War, and the ongoing Russia–Ukraine conflict, oil prices have typically risen sharply as markets factor in the risk of supply disruptions. Whenever conflict threatens major energy-producing regions, pipelines, or key shipping routes, traders quickly price in the possibility that global oil supplies could tighten. Even before any actual supply is lost, concerns around damaged infrastructure, reduced production, or disruptions to vital transport routes can add a geopolitical risk premium to crude prices, pushing them higher in the short term.

At the same time, history suggests that these shocks are often temporary. While equity markets typically come under pressure when oil prices spike and uncertainty rises, they have tended to stabilise and recover once energy markets find a floor and supply concerns begin to ease. Looking back at these three major geopolitical episodes helps illustrate how oil prices have reacted during periods of conflict and how global markets have historically responded once the initial shock fades and conditions gradually normalise.

Gulf War — Key Inferences

1. 01

   Oil markets reacted extremely sharply as Iraq invaded Kuwait, triggering fears of major supply disruptions in the Middle East. Crude prices surged from $15.75/bbl on 11 July 1990 to $41.15 by 28 September — a rise of roughly 161% in just 79 days.

2. 02

   Equity markets struggled during the period of uncertainty. The S&P 500 fell from $361.23 to $306.05, representing a drawdown of about 15.3% as investors priced in the economic risks of a prolonged conflict and higher energy costs.

3. 03

   Once the situation began to stabilise and oil prices peaked, market sentiment gradually improved. The S&P 500 eventually recovered to $364.97, marking a rebound of around 19% from the lows.

4. 04

   The full recovery took 146 days, illustrating how markets often require several months to regain confidence after a large geopolitical shock and energy spike.

Iraq War — Key Inferences

1. 01

   In the lead-up to the war, oil markets priced in a geopolitical risk premium, but the move was far more modest than during the Gulf War. Prices rose from $30.62 on 27 January 2003 to $34.93 by 7 March — an increase of roughly 14% over 39 days.

2. 02

   Equity markets showed comparatively strong resilience. The S&P 500 slipped from $847.48 to $828.89, a relatively mild decline of about 2.2%, reflecting the fact that investors expected a swift military campaign.

3. 03

   Once the invasion began and uncertainty faded, markets quickly stabilised. The S&P 500 rebounded to $875.67, representing a recovery of about 5.6% from the trough.

4. 04

   Notably, the market recovered in just 13 days, highlighting how quickly risk premiums can unwind when geopolitical fears fail to translate into sustained supply disruptions.

Russia–Ukraine War — Key Inferences

1. 01

   The invasion of Ukraine triggered a major shock to global energy markets, given Russia's role as one of the world's largest oil and gas exporters. Crude prices climbed from $91.01 on 2 February 2022 to $133.89 by 8 March — a 47% surge in just 34 days.

2. 02

   Equity markets reacted negatively to the sudden spike in energy prices and the broader macro backdrop. The S&P 500 declined from $4,589.38 to $4,170.70, a drawdown of roughly 9.1% during the early phase of the conflict.

3. 03

   Despite the initial sell-off, markets eventually stabilised as energy prices moderated and supply disruptions proved manageable. The S&P 500 later recovered to $4,631.6, marking a rebound of around 11.05% from the lows.

4. 04

   The S&P 500 index recaptured its pre-conflict level within a span of 21 days. However, that proved short-lived. The markets then declined after the Fed embarked on its monetary tightening spree to combat inflationary pressures, thereby causing a bear market in 2022.

Side-by-Side Comparison

All figures sourced directly from Bloomberg (Brent Crude Oil; SPX Index — S&P 500).