IRAN, WAR & WALL STREET
The Market is Pricing in “Venezuela II”
With fresh headlines around the Iran conflict, the ongoing Russia–Ukraine war, the recent U.S. operation in Venezuela, and even chatter about tensions spilling into places like Cuba, the distance between geopolitics and Wall Street suddenly feels much shorter than it did a few months ago.
Investors are right to ask the obvious questions about Iran, war & Wall Street. When the world becomes more dangerous, what actually happens to markets? Should you rush into oil stocks betting on a geopolitical windfall, or cash out and head for the sidelines and wait for the dust to settle? The quick answer is neither. The best playbook for investing during war is usually doing nothing if you are properly diversified.
When war breaks out, markets often react the same way humans do. Quickly. Emotionally. Sometimes a little irrationally.
Buy When the Cannons Roar
The first market reaction to war is usually predictable. Stocks drop as investors process uncertainty while capital rotates toward assets that historically hold up better during geopolitical stress. Gold gets attention. The U.S. dollar strengthens. Treasuries and defensive sectors suddenly look more attractive.
That response is not panic. It is uncertainty being priced in real time. Markets hate surprises, and few events introduce more uncertainty than war. The initial selloff simply reflects investors stepping back, reassessing risk, and waiting for clearer information. This is where one of Wall Street’s oldest sayings comes in: “Buy on the sound of cannons, sell on the sound of trumpets.” The idea suggests markets often bottom when fear is highest and rally long before peace is officially declared.
Like most market clichés, however, it only tells part of the story. Consider 2022. Oil briefly surged to nearly $130 a barrel after Russia invaded Ukraine. By year end the S&P 500 had fallen about 19% and the Nasdaq more than 33%. But the real culprit wasn’t the war itself. Markets were already grappling with 9.1% inflation, and the Federal Reserve responded with the fastest rate-hiking cycle in four decades. The war was the headline. Inflation and interest rates were the real story.
At the time, many economists predicted a recession Armageddon. It never arrived. The economy slowed but remained resilient, inflation eventually cooled, and markets recovered faster than most forecasts suggested. Which brings us back to today. The real investing question isn’t whether you buy when the cannons fire. It’s whether the underlying economic story changes while the cannons are still firing.
Jon here. If oil spikes, inflation rises, and rate cuts get pushed further out, markets will care far more about those forces than about the conflict itself. War headlines move markets for days. Oil, inflation, and interest rates move them for years.
The Market’s Base Case: A Quick Win
Right now markets appear to be trading this conflict like a movie they’ve already seen. Call it the “Venezuela II” scenario. The villain falls, order returns, oil drifts lower, and markets move on.
You can see that assumption in what hasn’t happened. U.S. equities are not behaving like they are staring down a 1970s-style oil shock. The bigger moves have been in crude, shipping, and energy logistics, where geopolitical stress usually shows up first.
Oil jumped as the Strait of Hormuz shifted from theoretical risk to real disruption. Tankers slowed, some routes rerouted, and traders quickly priced the possibility that roughly a fifth of global energy flows could face delays. That matters for markets, but it also matters politically. President Trump has acknowledged oil may spike even if he expects it to come back down. His economic message depends on it. Higher oil pushes gasoline prices higher, feeds inflation, and complicates the Federal Reserve’s path toward rate cuts.
Why Duration Matters More Than Severity
That is the core investing issue. Markets can tolerate a short war. What they struggle with is an oil shock that bleeds into inflation expectations and delays rate relief. Duration is the variable that matters most.
Early messaging suggests leaders believe the conflict can be contained. Trump has hinted at a timeline measured in weeks. Netanyahu has said the campaign may take “some time,” though not years. Investors hear that and translate it into the same bet: contained conflict, temporary disruption, markets move on.
But markets often believe the clean narrative until reality forces them to adjust. The real risk is not the oil price itself. It is the plumbing. Most investors watch crude as if it tells the entire story. It doesn’t. Markets price bottlenecks and duration. As one recent MarketWatch headline put it, “Prices to charter large oil tankers soar as Strait of Hormuz traffic grinds to a halt.” Charter rates have nearly doubled in recent days and are up roughly fivefold since the start of the year.
Three concerns keep resurfacing. First is disruption at the Strait of Hormuz, where roughly a fifth of global energy flows. Second is duration. The longer the conflict lasts, the harder it becomes to dismiss the economic consequences. Third, and most overlooked, is the machinery that moves global trade: shipping insurance, freight rates, and war-risk coverage.
When marine insurers withdraw coverage or sharply raise premiums, global trade quietly becomes more expensive. Tankers cost more to insure, freight rates rise, and energy arrives later and at higher cost. Businesses absorb the shock through thinner margins and higher input costs. That is how a regional conflict becomes a global invoice.
If investors want signal instead of noise, three indicators matter most: whether ships continue moving through Hormuz, whether shipping insurance and freight rates spike, and whether rising energy costs push interest-rate expectations higher. Moments like this tend to follow a familiar pattern. Headlines escalate, fear spreads, and the instinct is to act. More often than not, that instinct leads investors in the wrong direction. A better approach is surprisingly simple.
Five Ways to Invest Through Geopolitical Turbulence
1 Rebalance rather than reinvent your portfolio. When volatility rises, trim areas that have run like big tech, and add to areas that have lagged but still belong in the strategy.
2 Treat inflation hedges with discipline. Infrastructure, energy, and real-asset cash flow can help offset inflation shocks, but they should be sized as hedges rather than predictions. This coincidntally goes along with our recent client portfolio HALO thesis rotation last week out of tech and optimzation to the next AI phase. Materials, energy, industrials, infrastructure, staples, and supply chains all sit downstream of AI capital spending and fit our war and Wall Street investing strategies like a glove.
3 Maintain diversification across sectors that benefit from geopolitical stress and those that may suffer. Energy, industrials and defense companies may benefit, while fuel-intensive businesses often face margin pressure.
4 Make bond duration (interest rate risk) a conscious choice. Bonds do not always behave as a safe haven when inflation expectations rise. Focus on quality fixed income and thoughtful laddering strategies. Long term bonds may again suffer, while investment grade, short duration bonds and TIPS (treasury inflation protected securities) that we deployed may provide a strong buffer.
5 Remember that personal finance decisions matter as much as portfolio moves. If the economy stumbles, there could be higher costs and lower margins for small businesses and potential increase in unemployment. Make sure to maintain a healthy cash buffer, keep availble lines of credit open, review insurance coverage, and understand how supply disruptions could affect your household or business.
Five Things Not to Do When Markets React to War
1 Do not chase the first move in oil or any “war trade.” Markets often overshoot the initial shock and correct once more information arrives.
2 Do not let a single headline push you into long-term allocation changes. Geopolitical events are dramatic but rarely redefine the long-term direction of markets.
3 Avoid concentrating your portfolio in themes tied to a specific conflict. Themes fade faster than portfolios recover from overexposure.
4 Do not let live updates become your investment strategy. If a decision cannot survive a month without news, it probably was not a sound decision to begin with.
5 Do not ignore the boring plumbing of global markets. Shipping costs, insurance coverage, and freight logistics often determine how geopolitical stress shows up in inflation and interest rates.
Oil, War, and Market Reality
Before reacting to the latest headline, it helps to zoom out. The charts below highlight two realities investors often overlook during geopolitical crises: America is now the world’s largest energy producer, and historically markets recover far faster from wars than most people expect.
Oil and the Strait of Hormuz
For investors, the most direct way Middle East conflicts affect financial markets is through energy prices.
Iran is a member of OPEC and produces roughly 3 million barrels of oil per day along with significant natural gas output. Just as important, the country sits along the Strait of Hormuz, the world’s most critical energy chokepoint. Roughly 20 million barrels of oil pass through the strait each day, about one-fifth of global petroleum consumption.
That means even the threat of disruption can ripple through global markets. Oil prices had already been rising ahead of the strikes. The immediate reaction pushed crude higher, with WTI moving into the low $70s and Brent approaching $80. While Western countries import little oil directly from Iran, the global oil market is interconnected and highly fungible. Any perceived disruption to supply tends to lift prices worldwide.
Still, some perspective is useful. Current oil prices remain well below the roughly $128 peak reached in 2022 after Russia invaded Ukraine. And the global energy landscape today looks very different than it did during earlier Middle East crises.
The biggest change is the United States. In 2018, the U.S. became the world’s largest oil producer, surpassing both Saudi Arabia and Russia and maintaining that position ever since. Domestic production now exceeds that of any other country, giving the U.S. far greater insulation from supply disruptions than in previous decades.
America still participates in a global oil market, but being the largest producer changes the math. Supply shocks abroad do not hit the U.S. economy with the same force they once did. It is also worth remembering how difficult oil prices are to forecast.
When Russia invaded Ukraine, many analysts predicted energy prices would remain elevated indefinitely. Instead, oil stabilized and eventually declined much faster than expected. Similar patterns have played out repeatedly during geopolitical crises. Prices spike on uncertainty, then normalize once supply routes adjust and markets digest the news.
Which brings us back to the chart above illustrating the U.S. now sits at the center of global energy production. Our next chart (below) shows markets tend to recover from geopolitical shocks far faster than the headlines suggest.
Staying invested through geopolitical uncertainty
For long-term investors, the lesson from past geopolitical conflicts is simple: stay invested.
It’s natural to feel uneasy when headlines describe military strikes, retaliation, and the risk of a wider war. These events carry real human consequences and feel very different from the usual stream of market news about earnings, valuations, and economic data.
Yet history shows markets have navigated even the most serious global shocks. From World War II to the Gulf War to the conflicts in Iraq and Afghanistan, markets experienced short-term volatility but ultimately followed economic fundamentals. More recently, the wars in Ukraine and Gaza created uncertainty without derailing the broader market trajectory.
It is also worth remembering that Iran plays a minimal direct role in most global investment portfolios. The country has been under heavy sanctions for years, its economy has struggled with severe inflation, and its currency has collapsed. As a result, very few global portfolios have meaningful direct exposure.
Markets may still see volatility in the weeks ahead. Oil prices could move higher and investor sentiment may swing with the headlines. But trying to time these moves has historically proven counterproductive. Markets often rebound faster than expected, and missing even a handful of the best trading days can meaningfully reduce long-term returns.
The bottom line: Our base case for Iran, War & Wall Street still expects containment rather than a global shock. That does not mean volatility disappears. Oil could remain elevated for a period. The dollar often strengthens during geopolitical stress. Inflation may tick modestly higher and bond markets could remain choppy.
But we are not building recession portfolios around a single headline cycle. We are building resilient portfolios designed to withstand higher oil, a stronger dollar, and modest inflation pressure while still participating in long-term global growth.
If the “Venezuela II” scenario plays out, markets will not wait for a peace announcement. They will move first. If the conflict drags on, the warning signs will likely appear in shipping costs, insurance markets, and inflation long before they appear in the S&P 500.
So remember the old market saying: buy when the cannons roar and sell when the trumpets sound. And if your financial plan requires perfect headlines to succeed, it was never much of a plan to begin with. If you would like to discuss how these events may affect your portfolio or financial plan, feel free to reply to this email and we will schedule a time to talk.
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an independent advisory firm based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV.
–
