How investors should think about oil and stocks in the Iran war in 3 simple steps

The Iran war is stoking investor fears of a widening conflict, a 1974-like energy crisis, a global recession and the demise of this bull market.But between all the fires and explosions, it will pay to keep a cool head.War’s human cost is horrid.

But capital markets are cold-hearted.Regional conflicts – however tragic – never faze stocks or oil prices for long. Their trajectory follows a simple, three-step pattern: 1) Volatility and oil prices surge ahead of the conflict as saber-rattling raises uncertainty, 2) Initial fighting further gooses volatility and prices as markets digest worst-case scenarios, then 3) Stocks begin to rally – well before the fighting stops – as investors fathom the conflict’s limited and temporary economic footprint, realizing that global growth isn’t stopping, after all. The S&P 500 jumped 12.5% during Desert Storm and 31.9% in the 12 months after its outbreak.

Afghanistan’s and Iraq’s “forever wars” showcased long, multi-front fighting that failed to thwart bull markets.The run-up to 2003’s Iraq invasion evolved at the end of the long 2000-2003 bear market.

World and US stocks rocketed 33.1% and 28.7%, respectively, in 2003 as bombs didn’t blast stocks or GDP.They won’t this time, either.Yes, Russia’s Ukraine invasion happened early in a small, short bear market.It also involved energy.

But coincidence isn’t causation.Other myriad forces stung investors in 2022’s rare, sentiment-induced recession-less bear market – inflation, supply chain chaos, Fed hikes, yield curve inversion and more amid frothy sentiment and elevated stock supply entering 2022.

Besides, stocks bottomed that fall while fighting, sadly, continues now.The Gulf Coast’s role as a production hub and transit chokepoint sparks widespread fear.Yet these countries generate just 3.5% of global GDP.

Iran supplied just 3% of global oil output pre-war.Analysts previously estimated a 2026 3% global oversupply.

Iran’s oil exports g...