Missiles, Markets, and Money: How Modern Conflicts Are Rewiring Global Finance

Introduction

War has become a defining force in global markets. What once seemed like distant, regional disputes now ripple through global finance in real time, shaking investor confidence, redrawing trade routes, and repricing everything from energy to currencies. In a world shaped by algorithmic trading and instant news, war is one of the few forces that can still instantly jolt sentiment.

Modern conflicts aren’t just political events or humanitarian crises. They are capital market catalysts. Missile strikes and troop movements are now tracked with the same urgency as central bank decisions or earnings calls. And in today’s hyper-connected economy, the fallout is immediate: sector leadership rotates, capital flees, and structural weaknesses are laid bare.

The market impact of war has become hard to ignore in recent years. Now in its fourth year, the war in Ukraine has not only redrawn geopolitical lines but also reshaped global trade. Europe’s break from Russian gas has reoriented LNG flows across the world, while Ukraine’s blocked grain exports have deepened concerns about food security. In the Middle East, the brief but intense military exchange between Israel and Iran in early 2025 stirred fears of wider conflict, pushing up oil prices and boosting defense stocks. At the same time, sustained Houthi attacks in the Red Sea continue to disrupt shipping lanes, forcing vessels around Africa’s Cape of Good Hope, a costly detour not seen at this scale since the 1956 Suez Crisis.

While headlines focus on the immediate drama, the more important shifts are happening beneath the surface of global finance. Markets still follow a familiar playbook at first. Oil surges, defense stocks rally, and investors rush into gold or the U.S. dollar. But these short-term reactions often mark the start of something deeper. Wars tend to accelerate trends already in motion. Governments pivot toward defense, commodities reprice based on lasting supply realignments, and geopolitical risk becomes a permanent fixture in investment models.

Yet markets don’t always behave predictably. Not every conflict triggers a selloff, and not every missile strike sparks a panic. In today’s environment, investors move quickly, not by fleeing markets but by adjusting capital across sectors, assets, and geographies. Rather than retreating from uncertainty, capital is adapting to it. Recognizing that markets now reprice around geopolitical risk is key to navigating a world where conflict is no longer just background noise.

Shock and Repricing

Markets may be forward-looking, but when war breaks out, they react like a coiled spring. Volatility surges, capital rotates in days, and sectors quickly separate into winners and losers. Yet surprisingly, these moves don’t always follow the script investors expect.

For example, in February 2022, when Russian troops crossed into Ukraine, Brent crude oil spiked to nearly US$130 per barrel, the highest level since 2008. The VIX, Wall Street’s “fear gauge,” surged above 30, and safe havens like gold and the U.S. dollar climbed sharply. But the selloff in U.S. equities was short-lived as the S&P 500 began rebounding soon after.

Fast forward to April 2024, when Houthi attacks in the Red Sea forced commercial vessels to reroute around Africa’s Cape of Good Hope. This disruption triggered a freight rate surge that squeezed logistics margins and mirrored the chaos of the Suez Canal blockage in 2021. Yet the broader equity market remained mostly stable, suggesting investors were pricing in a localized, rather than systemic shock.

Even more telling was the Israel–Iran confrontation in early 2025. Despite direct military strikes and elevated geopolitical tension, U.S. equities barely blinked. Instead of broad-based selloffs, capital flowed into sectors that benefit from conflict: defense, cybersecurity, and energy. This behavior underscores a structural change in market dynamics, wherein geopolitical shocks are increasingly met with measured portfolio adjustments rather than broad-based risk aversion.

I. Equities

Historically, investors perceived defense stocks as short bursts of opportunity that emerged during conflict and quickly lost momentum afterward. However, in today’s world, defense is increasingly viewed not as a cyclical trade but as a core part of long-term portfolios in an era of persistent geopolitical instability.

Defense stocks in a new era

Since Russia’s invasion of Ukraine in 2022, defense budgets across NATO nations have surged. Germany committed to a €100 billion special defense fund, while Poland now spends over 4 percent of its GDP on its military, which is double the NATO target. The U.S. Department of Defense budget hit US$842 billion in 2024, and projections suggest continued increases tied to modernization, cybersecurity, and force readiness. This upward trajectory was cemented at the 2025 Hague Summit, where NATO members committed to a new long-term target of allocating 5 percent of GDP to defense by 2035.

This shift has transformed how investors approach the defense sector. Rather than being viewed as temporary hedges, companies like Lockheed Martin and BAE Systems are increasingly classified alongside utilities and data centres as vital components of national infrastructure.

Lockheed Martin (LMT), in particular, stands out in this evolving landscape. Beyond short-term surges tied to global events, its steady performance signals growing investor confidence in the sector’s long-term revenue stability. Multi-year government contracts, rising order backlogs, and a global push toward military modernization have helped LMT deliver returns that are increasingly driven by fundamentals rather than fear. In this new environment, the stock behaves more like an anchor than an alert.

ETF flows confirm the trend. The iShares U.S. Aerospace & Defense ETF (ITA) and the SPDR S&P Aerospace & Defense ETF (XAR) have significantly outperformed the S&P 500 since 2020. Their sustained strength highlights a broader reallocation of capital, as investors move from viewing defense as a tactical allocation to treating it as a policy-backed growth sector with durable demand and high barriers to entry.

ETF / Index	Return (%)
iShares U.S. Aerospace & Defense (ITA)	+128.4%
SPDR S&P Aerospace & Defense (XAR)	+113.1%
S&P 500 Index (SPX)	+87.6%

The reclassification of defense from controversial to critical is also influencing institutional ownership. Pension funds, insurers, and sovereign wealth funds that once avoided weapons due to ESG restrictions are now reassessing their exposure as geopolitical risk becomes harder to ignore.

Historical market reactions to war

While war is often associated with instability, U.S. equity markets have frequently shown resilience and, in some cases, surprising strength during times of conflict. A few standout cases include the following:

• World War II (1942–1945): Despite rationing, conscription, and economic uncertainty, the Dow Jones Industrial Average rose nearly 50% between the U.S. entry into the war and V-J Day. Markets anticipated the industrial boom and post-war recovery well before the fighting ended.
• Vietnam War (1965–1973): Though marred by inflation and domestic unrest, the S&P 500 climbed 43%, driven by defense spending and strong corporate earnings in sectors benefiting from Cold War dynamics. However, the inflationary consequences and rising bond yields later eroded real returns.
• Gulf War (1990–1991): Markets initially sold off on invasion news but quickly rebounded. The S&P 500 surged over 15% in the six months following the start of Operation Desert Storm, as investor uncertainty was replaced by confidence in U.S. military dominance and falling oil prices.

Equity markets have not historically collapsed in times of conflict. Instead, wars often accelerate investment into sectors tied to national security and supply chain stability. In a world increasingly defined by geopolitical competition, this trend shows no signs of reversing.

But the story doesn’t end with equities. If stocks show where investors are placing long-term bets, commodities reveal where the system is stressed in real time. From oil tankers to wheat fields, wars have an immediate and often severe impact on the physical backbone of the global economy.

II. Commodities

Commodities are often the first to react when geopolitical tensions rise. Oil, grain, and metal prices move quickly, reflecting immediate disruptions to trade and supply. As core inputs to the global economy, their movement signals both the shock and the scale of conflict. Few markets are as directly exposed to geopolitical risk.

Oil

Among major commodities, oil is often the most sensitive to conflict. Crude prices don’t just reflect supply and demand; they absorb fear, diplomacy, and disruption. And history shows they move in waves: sharp spikes, prolonged uncertainty, and then normalization.

The Russia–Ukraine war in 2022 was a textbook example. Brent crude jumped from ~US$75 to over $120 per barrel within weeks of the invasion, as Western sanctions rattled global supply chains. But the rally didn’t last. By mid-2023, prices slipped back below $80 as markets adapted: Russian oil was rerouted to Asia, U.S. shale production ramped up, and China’s tepid post-COVID reopening capped demand.

In early 2024, the Red Sea became the new flashpoint. Houthi attacks on commercial vessels, including oil tankers, led to widespread shipping detours and insurance rate hikes. Goldman Sachs estimated a $10–15 per barrel “war premium” embedded into Brent prices during the height of the crisis.

Going back further, even more dramatic moves can be found. The 1973 Yom Kippur War triggered an OPEC-led embargo on Western nations, quadrupling oil prices from $3 to $12 per barrel in just six months. The 1990 Gulf War and 2003 Iraq invasion followed similar patterns: swift, headline-driven spikes followed by slow reversion once new trade routes and military outcomes became clearer.

Conflict	Start Year	Pre-War Price	Peak Price	Duration to Peak	Notes
Yom Kippur War / OPEC Embargo	1973	$3	$12	6 months	Triggered 1970s stagflation
Gulf War	1990	$17	$41	4 months	Jumped pre-invasion, dropped quickly post-liberation
Iraq War	2003	$25	$40	3 months	Spike on invasion fear, normalized post-Shock & Awe
Ukraine War	2022	$75	$121	2 months	Sanctions + energy panic
Red Sea Attacks	2024	$76	$92	2 months	Freight rerouting, $15 premium

While each conflict plays out differently, the story told through oil prices is often the same: panic, adjustment, and a search for a new equilibrium.

Agriculture

Beyond energy markets, war also leaves a deep mark on global agriculture, where trade routes, crop yields, and food security can be upended almost overnight. The conflict in Ukraine is a clear example, severely damaging one of the world’s most important breadbaskets. Prior to the war, Ukraine accounted for:

• 10% of global wheat exports
• 15% of corn exports
• Nearly 50% of the sunflower oil supply

With Black Sea ports blockaded or under threat, global prices soared in 2022 and 2023. Wheat rose over 60%, while corn and barley followed suit. Fertilizer markets were also hit hard, as both Ukraine and Russia were major nitrogen and potash exporters.

This shock disproportionately hit emerging markets, especially in Africa, the Middle East, and parts of Asia, where food makes up a larger share of consumer spending. In countries like Egypt, Lebanon, and Tunisia, imported wheat is a lifeline. As supplies tightened, food insecurity worsened, and inflation surged.

Even as global prices began to stabilize in late 2023, local currency devaluations and fragile supply chains left many nations grappling with post-conflict ripple effects.

Gold

Throughout history, conflict and gold have moved in tandem, and early 2022 was no different. As Russian tanks crossed the Ukrainian border, gold rallied nearly 12% in two months from under US$1,800 to over US$2,000 per ounce.

But not all of gold’s demand is reactionary. Since the 2008 financial crisis, and especially after 2020, gold has become a strategic reserve asset once again. Central banks, especially in emerging markets, have been steadily increasing their gold reserves to reduce reliance on the U.S. dollar and protect against potential sanctions.

In 2022 and 2023 alone:

• China added over 200 tonnes of gold to its reserves
• Turkey became the largest central bank buyer globally
• Russia, already sanctioned, shifted to settling more trade in yuan and gold

Conflict Period	Gold Return (%)	Time to Peak	Notes
Ukraine War (2022)	+13.9%	~6 weeks	Gold rose from ~$1,800 in late Jan 2022 to ~$2,050 by early March 2022.
Gulf War (1990)	+8.3%	~5 months	Gold increased from ~$360 in Aug 1990 to ~$390 by Jan 1991.
Iraq War (2003)	+5.6%	~5 months	Gold climbed from ~$350 in Mar 2003 to ~$370 by Aug 2003.
COVID–Ukraine (2020)	+25.7%	~7 months	Gold surged from ~$1,500 in Jan 2020 to ~$1,970 by Aug 2020.

Gold continued to play its traditional role through 2024 and into 2025, responding to mounting instability across regions. In April 2024, following Red Sea shipping disruptions and renewed Middle East tensions, gold climbed above US$2,300 per ounce, marking its highest level at the time. The rally accelerated into early 2025, with prices hitting a record high of US$3,500 in March as investors reacted to the Israel–Iran confrontation and rising global risk. Although the price has since eased slightly to around US$3,280 by mid-2025, it remains up more than 40% over the past year. Central bank buying and persistent demand from risk-averse investors have helped keep gold elevated, reinforcing its place in portfolios during periods of uncertainty.

As commodities spike and global trade routes shift, the effects cascade into currency markets, which serve as both a mirror and a pressure valve. FX doesn’t just absorb commodity shocks; it amplifies them. In times of war, currencies become the final translator of risk, reflecting capital flight, import strain, and shifting global alliances in real time.

Currencies

While equity and commodity markets may react sharply in the days after a war begins, foreign exchange markets reflect geopolitical stress in real time. They move in sync with the global economy, shaped by shifts in sentiment, policy, trade, and investment behavior. When tensions rise, currencies act as real-time indicators of investor concern and pathways for global financial pressure.

Safe Haven Flows

Whenever global risk surges, safe-haven currencies typically strengthen as capital seeks stability. The U.S. dollar (USD) remains the dominant refuge, due to its role in global trade, central bank reserves, and U.S. Treasury liquidity. But it’s not alone: the Swiss franc (CHF) and the Japanese yen (JPY) also attract inflows during geopolitical stress, though their behavior has diverged more in recent years.

In the wake of the Russia–Ukraine invasion in February 2022, the U.S. Dollar Index (DXY) jumped more than 7% within three months, as investors fled European assets and priced in rising energy-driven inflation. The Swiss franc rose over 5% against the euro, reflecting Switzerland’s traditional neutrality and low volatility. 

Interestingly, the Japanese yen has long been seen as a safe haven, attracting investors during periods of global turmoil. Yet in recent years, the yen’s reputation as a safe haven has shown signs of weakening. Japan imports the vast majority of its energy, leaving it highly exposed to rising oil and gas prices. When commodity costs spiked in 2022 and 2023, Japan’s trade balance deteriorated. Instead of flowing into the yen, capital moved elsewhere as investors grew concerned about the country’s swelling import bill and inflationary pressures. The result: a weaker yen and a reevaluation of its role as a defensive currency.

This split highlighted a broader shift. A currency’s safe haven appeal now hinges not just on stability but also on energy dependence, policy stance, and its role in global power dynamics.

Conflict Currencies

While haven currencies attract inflows, those tied to conflict-zone nations often collapse under pressure as capital flees, sanctions bite, and trade grinds to a halt.

The most obvious case is the Russian ruble (RUB). After sanctions locked Russia out of the global SWIFT payment system and froze central bank reserves, the ruble plunged over 40% in March 2022. A mix of aggressive capital controls and strong energy exports eventually brought some stability, but the currency has never fully recovered. It remains shadowed by parallel market rates and restricted convertibility.

The Israeli shekel (ILS) appreciated during the Israel–Iran tensions in 2025 despite initial concerns, likely due to swift policy intervention by the Bank of Israel, aggressive rate hikes to stabilize capital flows, and limited direct escalation. As the conflict appeared contained and escalation risks receded, investor confidence returned. The shekel ultimately gained over 9 percent against the U.S. dollar, making it one of the few frontline currencies to strengthen in the face of armed conflict. 

Emerging markets, too, are vulnerable, particularly when domestic fragilities intersect with external shocks. The Turkish lira (TRY), already under strain from years of unorthodox monetary policy, high inflation, and eroding investor confidence, experienced another blow during Syria-related tensions in 2020 and renewed U.S. sanctions. These pressures, combined with rising geopolitical risk on its southern border, led to over a 30 percent depreciation in 2020 and 2021. In Turkey’s case, conflict did not cause the crisis, but it accelerated an already fragile currency decline.

Country	Currency	Conflict	1-Mo Pre	1-Mo Post	% Change
Russia	RUB	Russia–Ukraine (2022)	75.4 RUB/USD	121.3 RUB/USD	–37.9%
Israel	ILS	Israel–Iran Tensions (2025)	3.82 ILS/USD	3.47 ILS/USD	+9.2%
Turkey	TRY	Syria Border Conflict (2020)	7.75 TRY/USD	8.35 TRY/USD	–7.7%
Switzerland	CHF	Russia–Ukraine (2022)	1.0594 EUR/CHF	1.0069 EUR/CHF	+5.0%
U.S. Dollar Index	DXY	Russia–Ukraine (2022)	95.64	99.42	+4.0%

Currency Wars and Inflation Spillovers

In 2022 and 2023, countries such as India, the Philippines, and Egypt experienced surging inflation, not because of overheated domestic demand but because they were forced to buy critical imports in stronger currencies like the U.S. dollar. For many of these economies, the strength of the dollar magnified the external shock.

In response, some nations have accelerated efforts to reduce their exposure to the U.S. financial system. Conflicts in Ukraine, the Middle East, and elsewhere have made clear that currency dependence can also be a strategic vulnerability. De-dollarization has emerged as a central theme, particularly among BRICS nations. Russia and China now settle more trade in yuan or rubles, while central banks from Brazil to Kazakhstan have steadily increased their gold reserves in place of U.S. Treasuries.

Although the dollar remains the world’s dominant reserve currency, its growing use as a tool for sanctions has prompted a broader reassessment. Many countries are now hedging against the perceived risk of future financial isolation, not just by shifting trade settlement but by rethinking how they manage financial sovereignty in a more divided global economy.

This global repositioning, however, rarely happens in the heat of conflict. The deepest transformations often emerge after the fighting slows. Capital, once rattled, begins to reorganize. Governments take stock of vulnerabilities and begin reallocating budgets. And investors begin asking a longer-term question: Where is the world going next? In this post-war phase, markets don’t just recover, they rewire themselves around altered trade routes and capital flows.

III. Post-War Realignment

As conflicts stretch on and volatility subsides, the aftermath can be just as economically significant as the events themselves. Financial systems begin to realign, debt markets start to reflect new power structures, and the rules of global finance begin to quietly reset.

Historical Capital Shifts

History shows that wars don’t just leave behind physical destruction; they also redraw the map of global capital. After World War II, the Marshall Plan not only rebuilt Europe but also positioned the U.S. dollar at the center of the new global financial system. American capital flowed into devastated economies, while U.S. multinationals extended their reach. The war’s aftermath embedded U.S. dominance into the post-war financial system, including Bretton Woods and the rise of Wall Street.

In the 1990s, the Gulf War reinforced the role of the petrodollar system. Oil continued to be priced in U.S. dollars, and the revenues earned by Middle Eastern producers were largely recycled into U.S. assets, including treasuries and real estate. This cycle strengthened the dollar’s global dominance and deepened financial ties between energy-exporting states and the U.S. economy. Military power helped secure energy supply lines, while dollar-based oil trade ensured steady demand for U.S. financial instruments. In this way, military strength and financial hegemony moved in lockstep.

More recently, Russia’s annexation of Crimea in 2014 marked another turning point. It forced a strategic rethink across NATO, prompting several European nations to reassess their defense postures and energy dependencies. Germany’s Zeitenwende, or “turning point,” began here with a public acknowledgment that soft power alone was no longer sufficient. In the years that followed, defense budgets began to rise, energy supply chains were diversified, and capital started flowing into sectors linked to security and resilience. By the time Russia invaded Ukraine in 2022, the groundwork had already been laid for a broader shift in public spending and investment priorities. What began as a regional crisis has become a catalyst for long-term structural changes across both geopolitics and global markets.

Where is the Money Going Now?

The global landscape in 2025 is no longer unipolar. A new split in capital flows is emerging, shaped by rising geopolitical tensions, shifting national priorities, and growing institutional caution.

In advanced economies, capital is being redirected toward strategic resilience. Key areas of investment include:

• Energy security projects: LNG terminals, nuclear, renewables tied to national grids
• Defense modernization: multi-year procurement plans, AI-enabled surveillance, and missile systems
• Reshoring infrastructure: semiconductor fabs, battery supply chains, and critical minerals

At the same time, the divide between East and West is becoming more pronounced. China’s Belt and Road Initiative has expanded well beyond infrastructure, increasingly facilitating trade and investment flows settled in yuan rather than U.S. dollars. This shift is reinforced by the growing influence of institutions like the New Development Bank (BRICS Bank), which offer emerging economies an alternative to Western-led financial systems. Together, these efforts reflect a broader ambition: to build parallel economic frameworks that operate outside the orbit of U.S. and European dominance.

For many emerging markets, this evolving landscape presents both opportunities and challenges. On one hand, alternative financing channels can offer relief from dollar-denominated debt and Western conditionality. However, aligning too closely with one bloc can strain relations with the other, making it harder to access capital, trade, or diplomatic support. As a result, many developing economies are attempting to maintain neutrality, but doing so while also managing inflation, external debt, and balance-of-payments pressure is becoming increasingly difficult.

This geopolitical balancing act is unfolding against a backdrop of mounting economic strain. Capital flight, surging interest rates, and heavy dependence on imported energy have created a volatile mix of inflation, fiscal stress, and rising debt burdens in several countries. Sri Lanka has already defaulted. Ghana has suspended debt repayments and begun restructuring. Others, including Pakistan, Egypt, and Tunisia, remain heavily reliant on IMF assistance.

In these cases, the cost of conflict is no longer limited to military spending or diplomatic strain. It is reflected in currency depreciation, austerity measures, and the harsh terms of sovereign bailouts. These outcomes are likely to shape their development trajectories long after the conflicts themselves fade from headlines.

Country	Year	Event	Sovereign Risk Trend	Outcome
Sri Lanka	2022	Political crisis + food/energy shock	🔺 Spreads widened sharply	Defaulted in April 2022
Ghana	2022	Capital flight post-Ukraine war	🔺 Spreads widened sharply	Restructuring initiated in Dec 2022
Ukraine	2022	Russian invasion	⛔ Spreads spiked above 4,000bps	Restructure in progress
Egypt	2022–24	Commodity shock + FX outflows	🔺 Spreads rose moderately	Received multiple IMF packages
Pakistan	2023	Political + energy instability	🔺 Spread pressure persistent	Extended IMF facility
Tunisia	2023–24	Twin deficits + energy import costs	🔻 Credit rating under pressure	In IMF loan discussions
Russia	2022–25	Full-scale war + sanctions	⛔ Market access collapsed; bonds delisted, external bond pricing distorted by sanctions and capital controls	External default on foreign debt; shift to internal issuance and non-USD trade
Iran	2023–25	U.S. sanctions + SWIFT exclusion	⛔ Global access blocked	Cut off from debt markets; relies on domestic bond sales and non-USD trade for financing
Israel	2025	Iran conflict + regional instability	🔺 Spreads widened moderately due to localized conflict risk	Stabilized after central bank action and strong demand for a $5 billion bond sale

Conclusion

Across history and asset classes, one pattern is unmistakable: war reshapes markets in waves. The immediate phase brings sharp dislocations — capital surges into oil, defense, and traditional safe havens like gold and the dollar. But the more lasting effects unfold gradually, as governments reallocate resources, supply chains are redrawn, and investors reassess long-term exposure to risk.

What follows is not simply reconstruction but a realignment of capital, influence, and policy. Markets gravitate toward perceived stability, debt becomes a tool of negotiation or leverage, and fractured trust gives rise to new alliances and institutions. These shifts quietly lay the foundation for the next phase of global finance.

From sovereign defaults to de-dollarization, the post-war footprint leaves a lasting mark. Even as headlines fade, the aftershocks continue to ripple through trade, monetary policy, and investor behavior.

Across markets, the implications are both immediate and structural. Defense and cybersecurity firms are now treated as strategic holdings. Commodities like oil and grain recalibrate global flows. Currencies reflect real-time geopolitical pressure. And capital reorients as debt burdens, inflation risks, and security priorities reshape the investment landscape.

For investors, the message is clear: geopolitics is no longer peripheral. It is central to macro strategy. While war may not always derail global growth, it redefines where and how that growth plays out. The cost of conflict is not just human; it is financial, persistent, and increasingly systemic.

This article is authored by Luke Shirley