War, Oil, and the Long-Term Investor: What History Tells Us

With a ceasefire between the US and Iran holding, for now, investors are asking the same question they always ask in moments like this: should I do something?

Over the past five weeks, markets have been gripped by the US-Iran conflict and the closure of the Strait of Hormuz, a narrow waterway that carries roughly one-fifth of the world's petroleum. Oil surged above $100 a barrel. Equity indices swung wildly on every diplomatic headline. And investors, understandably, felt the urge to act.

This feeling is completely human. But history, as it so often does, offers a more useful guide than emotion.

The pattern markets have shown, again and again

Across 20 major post-World War II military conflicts, a striking pattern has emerged. Markets typically fall in the initial days and weeks, reflecting fear and uncertainty about how far a conflict will spread. But the recovery is often faster than anyone expects.

The duration of a conflict, it turns out, has historically had little bearing on market performance. Wars that lasted years, even decades, did not prevent markets from recovering and eventually moving higher. What markets care about is not the war itself, but whether the war structurally disrupts the global economy.

"Wars only have a lasting impact on financial markets when they affect economic fundamentals: prolonged disruptions in energy supply, international trade, or global growth. When such effects remain limited, investor confidence often returns more quickly than expected."

When oil is the variable that matters

Not all conflicts are equal. The critical factor in the current situation, as it was in 1973, 1990, and 2022, is oil. When a conflict involves a major energy-producing region or a key shipping chokepoint, the stakes for markets rise considerably.

The 1973 Arab oil embargo is the clearest cautionary tale. The S&P 500 took six long, painful years to recover. But that episode was compounded by broader economic dysfunction: stagflation, monetary policy failures, and a structurally oil-dependent economy that no longer exists in the same form today.

The more recent Russia-Ukraine war is instructive in the opposite direction. Despite both countries being major exporters of energy and food, and despite WTI crude trading above $90 per barrel for six straight months and briefly hitting $124, the S&P 500 rose more than 60% from the start of that conflict. Why? Because it became clear that Russian oil supplies would not be meaningfully disrupted for Western markets, and the US economy was resilient enough to absorb the shock.

The key question for today's investor is not whether oil is high right now. It is whether the disruption will be sustained, and whether that sustained disruption is severe enough to damage corporate earnings and economic growth over the medium term.

The danger of "doing something"

Perhaps the most important lesson from history is not about markets themselves. It is about investor behavior during these moments.

Many investors who abandoned equities during the oil shocks of the 1970s never returned, and missed the extraordinary bull market that followed in the 1980s. Research shows that an investor who missed just the five best days in the market since 1988 would have reduced their long-term gains by 37%. The best days in the market often come during the worst periods of news flow.

"Negative headlines can persist for some time. Investors typically wait for good news and by the time it arrives, they have often missed some of the strongest days of market performance."

The impulse to "take action" in times of war is understandable. But the evidence consistently shows that market timing during geopolitical crises is, at best, a neutral strategy, and at worst, deeply costly to long-term wealth creation.

What history does not guarantee

We believe in intellectual honesty. Historical averages are not promises. Each conflict unfolds within a unique macroeconomic and market backdrop. Some wars coincided with recessions or financial imbalances that amplified their impact on asset prices. The current situation carries its own distinct risks: global growth was already fragile, equity valuations had been stretched by AI-driven market concentration, and a prolonged energy shock could complicate the path for central banks.

A two-week ceasefire is not a resolution. Financial markets will remain sensitive to any breakdown in talks. If oil stays structurally elevated, the pressure on inflation and corporate margins will build.

This is precisely why we focus on what we can control: owning businesses with durable earnings, strong free cash flow, and balance sheets that can weather economic pressure, regardless of what happens in the Strait of Hormuz.

Our approach

Our portfolios are built around businesses with genuine intrinsic value, companies that can generate returns for shareholders across economic cycles, not just in calm markets. Geopolitical events test the quality of a portfolio, but they do not change the underlying value of well-run businesses.

In times like these, the most valuable thing a long-term investor can do is stay informed, stay disciplined, and resist the noise.

A note from Solar Asset Management

This blog is for educational purposes and does not constitute investment advice. Solar Asset Management N.V. is regulated by the Central Bank of Curacao and Saint Maarten. If you would like to discuss your portfolio in the context of current market conditions, we invite you to reach out to our team at info@solar-asset.com.