Comparison of the Iran-U.S. War and Middle Eastern Conflicts in History: Do stocks, bonds, and oil trends resemble those during the Gulf War period?

Cailian Press, March 27 (Editor: Xiao Xiang) The oil market is undoubtedly facing the highest risks right now.

While the Trump administration in the U.S. seeks peaceful negotiations with Iran, the White House continues to amass more troops in the Middle East.

According to U.S. Defense Department 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 forces would strengthen the capabilities of approximately 5,000 Marines and thousands of paratroopers already in the region. It is speculated that future activities may occur near Iran and its energy hub, Halek Island.

Meanwhile, traders are warning that each day of conflict will intensify energy shocks and push the global economy, stocks, and bonds into greater danger.

As this war, which began on February 28, approaches its first month, let’s briefly review its similarities and differences with historical geopolitical conflicts:

The Largest Oil Supply Disruption in History

The International Energy Agency stated in mid-March that the closure of the Strait of Hormuz has caused the most severe supply interruption in the history of the global oil market.

(From left to right: Suez Canal War, Arab Oil Embargo, Iranian Revolution, Gulf War, Iran-Iraq War) The Strait of Hormuz is a critical chokepoint, accounting for about 20% of the daily global oil consumption of 100 million barrels. Currently, oil tanker traffic through the strait has sharply decreased to almost none. Although Saudi Arabia has rerouted some supplies through existing pipelines to other export terminals, analysts including Rapidan Energy Group say that over 10 million barrels of oil per day from the Middle East are still disrupted.

Threats against oil tankers and the shutdown of major oil production facilities in the Middle East could impact the oil and natural gas markets far beyond the end of the conflict. Unlike previous disruptions lasting months or longer, during the actual blockade of the Strait of Hormuz, Saudi Arabia and other major oil exporters had limited capacity to ramp up idle production.

Oil Price Increase Comparison

Since the beginning of the year, global benchmark Brent crude futures have surged about 80%, even though earlier reports of U.S.-Iran negotiations once triggered significant sell-offs. As shown in the chart below, since late last month when drone and missile attacks frequently crossed the Strait of Hormuz, the current surge in oil prices is most similar to the period after the Gulf War in 1990.

The Gulf War was a regional conflict from August 2, 1990, to February 28, 1991, led by a coalition of 34 countries against Iraq. The main combatants included multinational forces and Iraq, with approximately 660,000 and 860,000 troops respectively.

Meanwhile, the current price increase has already far exceeded the 2022 Russia-Ukraine conflict. Of course, before the 2022 war, the global economy was recovering strongly from the pandemic — at that time, oil prices were much higher than at the start of this year. However, it’s worth noting that most of the expected oil supply disruptions in 2022 did not actually occur, yet prices remained high for months.

U.S. Stock Market Trends Comparison

This Thursday, the S&P 500 and Nasdaq recorded their largest single-day declines since February 28, when the U.S.-Israel-Iran conflict began. Since the outbreak of this conflict, the decline in U.S. stocks has generally followed the typical negative reaction seen after geopolitical shocks.

Before this war, concerns about AI potentially disrupting industries like software and financial services had already caused a correction in the S&P 500. Investors say that since the conflict started, the high valuations of U.S. stocks have further amplified volatility.

Overall, the geopolitical conflict with a greater impact on U.S. stocks than current levels was the Gulf War of the 1990s. In contrast, by the current stage of the Russia-Ukraine conflict, the S&P 500 has nearly returned to its pre-conflict level. Of course, the geopolitical shocks at that time exacerbated inflation, ultimately leading to declining corporate profits and rising borrowing costs, which caused the S&P 500 to fall 21% in the first half of 2022.

U.S. Treasury Selloff Comparison

As shown in the chart below, the yield on the 10-year U.S. Treasury has risen to levels comparable to those during the phases of the Russia-Ukraine conflict and the Gulf War.

One difference is that before the Russia-Ukraine conflict in 2022, the Fed was trying to revive the economy post-pandemic, keeping yields low. This time, uncertain interest rate prospects have kept yields at relatively high levels. Nonetheless, the selloff in Treasuries remains strong, with the 10-year yield climbing to its highest since July last year.

After Iraq invaded Kuwait in 1990, the 10-year Treasury yield rose even faster, when U.S. energy dependence was much higher than today.

Strategic Petroleum Reserve Releases Nearly Match Russia-Ukraine Conflict

The U.S. has pledged to contribute a large share—about 172 million barrels—of the largest-ever release of crude oil from the Strategic Petroleum Reserve (SPR) to the International Energy Agency. The oil stored in salt caverns near the Gulf Coast is slightly smaller than the emergency release authorized by President Biden during the Russia-Ukraine conflict in 2022.

From a historical perspective, both releases are substantial, indicating that the White House is becoming more proactive in using strategic reserves to address price shocks or economic threats.