Comparison of the Iran-U.S. War and Historical Conflicts: Do stocks, bonds, and oil behave more like during the Gulf War?

Hot Sections

Watchlist

Data Center

Market Information Center

Flow of Funds

Simulated Trading

Client-side

Source: Caixin Local News

Caixin Local News March 27 (Editor: Xiaoxiang) The risk that the oil market is facing right now is undoubtedly higher than ever.

While the Trump administration in the United States seeks peace talks with Iran, the White House is still assembling more troops in the Middle East.

According to U.S. Department of Defense officials, the Pentagon is considering deploying up to 10,000 ground troops to the Middle East, including infantry and armored vehicles, to provide more military options. These troops will enhance the military capabilities of roughly 5,000 Marines and several thousand paratroopers already deployed to the region. Observers speculate that they may operate in the vicinity of Iran and its energy hub, Khark Island, in the future.

Meanwhile, traders are also warning that with each additional day of conflict, the energy shock will intensify and push the global economy as well as stocks and bonds into greater danger.

So, as this war that began on February 28 is about to pass its first month, what similarities and differences does it have compared with historical geopolitical conflicts? Let’s take a brief look:

The biggest oil supply cutoff crisis in history

In mid-March, the International Energy Agency said that the closure of the Strait of Hormuz has caused the most severe supply disruption in the history of the global oil market.

(From left to right: the Suez Canal War, the Arab oil boycott, the Iranian Revolution, the Gulf War, the Iran-Iraq War)

The Strait of Hormuz is a chokepoint that supplies about 20% of the world’s daily consumption of 100 million barrels of oil. At present, tanker traffic through the strait has dwindled to almost none. Although Saudi Arabia has routed part of its supply to other export terminals through existing pipelines, analysts—including Rapidan Energy Group—say that each day, as much as 10 million barrels or more of oil supply from the Middle East remains blocked.

Threats to tankers from Iran, along with the shutdown of major production facilities in the Middle East oil-producing countries, could cause the impact on oil and natural gas markets to far exceed the time when the conflict ends. Unlike earlier disruptions that lasted for months or even longer, while the Strait of Hormuz is effectively under blockade, Saudi Arabia and other major crude oil exporters have very limited ability to ramp up idle capacity.

Oil price increase comparison

Since the start of the year, the price of global benchmark Brent crude oil futures has surged by about 80%. Even though earlier reports about talks between the U.S. and Iran temporarily triggered a sharp sell-off, as shown in the chart below, since late last month, after drones and missiles began frequently crossing the Strait of Hormuz, the extent of the oil price surge so far is most similar to the period after the outbreak of the 1990 Gulf War.

The Gulf War was a limited war led by a coalition of 34 countries headed by the United States against Iraq, from August 2, 1990 to February 28, 1991. The main participants included multinational forces and Iraq, with each side deploying roughly 660,000 and 860,000 troops, respectively.

At the same time, the current rise in oil prices is actually far beyond that of the 2022 Russia-Ukraine conflict. Of course, before the outbreak of the Russia-Ukraine war in 2022, the global economy was experiencing a strong recovery from the pandemic—at that time, oil prices were higher than the level at the start of this year. But it’s worth noting that even if the originally expected crude oil supply disruptions largely did not occur back then, oil prices still stayed elevated for months.

U.S. stock market performance comparison

This Thursday, the S&P 500 Index and the Nasdaq Index just recorded their largest single-day declines after the commencement of the U.S.-Israel-Iran war on February 28. And judging by the trajectory of U.S. stocks since the outbreak of this round of fighting, the sell-off process has been broadly consistent with the negative reactions seen after previous geopolitical shocks.

Before this round of fighting broke out, the S&P 500 Index had already pulled back because investors worried that artificial intelligence could disrupt industries including software and financial services. Investors said that after the war began, the elevated valuations in the U.S. stock market further intensified some of the volatility.

Overall, among geopolitical conflicts weighing more heavily than the current U.S. stock market, the one that stands out is the Gulf War of the 1990s. By contrast, at the current stage of the Russia-Ukraine conflict, the S&P 500 Index is already basically back to the same level as when the conflict started. Of course, considering that the heightened geopolitical shock in this case exacerbated inflation, ultimately leading to lower corporate earnings and higher borrowing costs, it still caused the S&P 500 Index to fall 21% in the first half of 2022.

U.S. Treasury sell-off comparison

As shown in the chart below, the rise in the yield on the 10-year U.S. Treasury since the outbreak of this U.S.-Iran war is basically comparable to the Russia-Ukraine conflict and the Gulf War during the same phase.

Of course, one difference is that before the 2022 Russia-Ukraine conflict, U.S. Treasury yields were still at relatively low levels because the Federal Reserve was trying to revive the economy after the pandemic. This time, however, uncertainty about the interest-rate outlook has kept yields at a relatively high level. Still, the intensity of the sell-off in U.S. Treasuries has not diminished at all—10-year U.S. Treasury yields have climbed to one of the highest levels since last July.

After Iraq’s invasion of Kuwait in 1990, the pace at which 10-year U.S. Treasury yields rose was even faster for a time—at that time, the United States was far more dependent on energy than it is now.

Strategic petroleum reserve sell-off intensity matches the Russia-Ukraine conflict

The United States has pledged to contribute a huge share—about 172 million barrels of oil—toward the largest-ever crude oil release plan in history for member countries of the International Energy Agency. The crude released this time is stored in salt-cavern networks near the U.S. Gulf Coast, with a scale slightly smaller than the emergency release authorized by former President Biden during the Russia-Ukraine conflict in 2022.

And by historical standards, the scale of these two releases is both very large. This suggests that the White House is becoming more proactive in using strategic reserves to respond to price shocks or economic threats.

 Open a futures account on Sina’s major partner platform, safe, fast, and reliable

Massive information and precise interpretation—right on the Sina Finance APP

责任编辑：赵思远