The global economy has entered a period of acute uncertainty, shaped by renewed energy shocks and escalating geopolitical risk. Military conflict in the Middle East has disrupted one of the world’s most critical energy corridors, sending fuel prices sharply higher. It has also reintroduced inflationary pressures just as growth momentum was beginning to normalize. At the same time, financial markets are reacting in ways that echo past wartime episodes—volatile in the short term, yet far more resilient than initial headlines suggest. This outlook examines the forces driving today’s turbulence, the lessons history offers investors during periods of conflict, and why discipline and patience remain essential amid elevated uncertainty.
INFLATION RISKS ARE RISING AS ENERGY SUPPLY CHAINS TIGHTEN
Consensus expectations entering 2026 envisioned a relatively benign macro backdrop. Forecasts from major institutions such as Goldman Sachs projected inflation continuing to cool toward the Federal Reserve’s target, with real GDP growth near trend. Those assumptions are now under pressure.
The conflict involving Iran, the United States, and Israel has severely disrupted traffic through the Strait of Hormuz, a chokepoint that normally handles roughly 20% of global oil and liquefied natural gas flows. The strait has not been fully sealed. However, Iran’s policy of selective access—combined with direct attacks on shipping and sharply higher war-risk insurance costs—has reduced commercial transit to a fraction of normal levels. Hundreds of vessels remain stranded in the Persian Gulf. Others have been rerouted around the Cape of Good Hope.
The result has been a rapid spike in energy prices. Since late February, crude oil has frequently traded well above $100 per barrel. Refined products have seen even larger moves. Jet fuel prices have more than doubled at peak levels, forcing airlines to cut capacity, impose fuel surcharges, and raise ticket prices sharply—sometimes by triple digits on constrained international routes. Diesel prices have also surged. This is critical for trucking and logistics. As a result, cost pressures across the supply chain have intensified.
Virtually all consumer goods in the United States rely on truck transport at some stage. Because of this, energy inflation of this magnitude is likely to filter through to broader price indices in coming months. A full reacceleration of 1970s-style inflation is not the base case. However, the risk of upside inflation surprises in mid-2026 has increased materially. Economic growth may also soften. Higher costs are likely to weigh on consumption and business activity.
TRANSPORTATION AND LOGISTICS: THE FIRST TRANSMISSION CHANNEL
Transportation has become the most immediate conduit between geopolitical stress and domestic economic conditions. Airlines, facing a sudden surge in fuel costs and longer routing times due to airspace restrictions, are moving aggressively to protect margins. Capacity reductions, higher fares, and increased fees are already evident. Similar dynamics are emerging in freight and parcel delivery, where rising fuel and insurance costs are prompting surcharges. These costs will ultimately be borne by consumers and businesses alike.
These measures help stabilize corporate balance sheets. However, they also function as a stealth tax on economic activity, reinforcing the risk of slower growth in the quarters ahead.
STOCK MARKET DRAWDOWNS DURING WARS TEND TO BE MUTED
Despite these macro challenges, financial markets have historically shown remarkable resilience during periods of war. Initial selloffs are common as uncertainty spikes. However, sustained bear markets driven solely by geopolitical conflict are rare.
The attack on Pearl Harbor in December 1941 remains one of the most dramatic geopolitical shocks in U.S. history. Even then, the equity market’s decline stopped just shy of bear territory. It recovered to new highs within ten months.
Post-World War II history tells a similar story. During the Korean War, the Six-Day War, the Yom Kippur War, and the 1990 Gulf War, the S&P 500 experienced average peak-to-trough declines of less than 10%. Importantly, those drawdowns were typically brief—often lasting only a few weeks. They were followed by rapid recoveries as uncertainty faded and economic fundamentals reasserted themselves.
Across major geopolitical crises since 1950, markets have generally bottomed within about a month. They have typically reclaimed losses within the following two to three months. These episodes underscore a critical point: markets price uncertainty quickly, but they do not remain hostage to it indefinitely.
MARKET RESILIENCE IN THE CURRENT CYCLE
Early 2026 market behavior has so far been broadly consistent with historical patterns. Volatility has risen, energy-related sectors have repriced sharply, and risk assets have reacted to headlines surrounding ceasefire negotiations and shipping access through Hormuz. Despite this, earnings expectations remain resilient. This is particularly true for large U.S. corporations.
Corporate profitability has been supported by strong balance sheets and pricing power in key sectors. In addition, productivity gains driven by technology and artificial intelligence adoption have played a role. Over the past five years, S&P 500 earnings growth has meaningfully outpaced long-term averages, and forward estimates still project solid gains into 2026 and 2027. This remains true even after accounting for higher input costs.
Unless the energy shock escalates dramatically or becomes prolonged for many quarters, history suggests that the current bull market can absorb this volatility and continue to advance once geopolitical risk stabilizes.
WHAT HISTORY SAYS INVESTORS SHOULD DO
For investors, the lesson from decades of geopolitical crises is straightforward: stay invested.
Across roughly 20 major geopolitical events since 1950, equity markets have typically declined for only several weeks, with full recoveries occurring in roughly seven to eight weeks on average. Investors who attempted to trade around these events often missed the rebound entirely.
Periods like the present are uncomfortable by design. Headlines are alarming, volatility is elevated, and economic narratives shift quickly. However, markets are forward-looking mechanisms. Once the range of outcomes begins to narrow, conditions start to stabilize. This is true even if they remain imperfect. At that point, risk assets tend to recover. This often happens well before the news flow improves.
Patience, diversification, and adherence to a long-term plan remain the most reliable tools for navigating periods of geopolitical stress.
