Oil prices climbed by about 30% in the two weeks after Russia invaded Ukraine. After the current war in the Middle East began, they climbed by about 50% in the same window. Those are the figures the European Central Bank gives in its Economic Bulletin, Issue 4/2026. The bottom line: when a conflict threatens supply, crude moves first and nearly everything else follows.
The ECB’s analysis looks at US markets through a new yardstick from Iacoviello and Tong (2026). Their index uses AI to read more than five million US newspaper articles. It flags geopolitical events that touch energy supply, the Gulf War for one, and sets aside those that do not, such as the 2015 Paris terrorist attacks.
What a supply shock does
The researchers scaled their model to a shock that knocks 10% off US stock prices in the first month. In that case oil rises around 30% and stays above its starting level for around two quarters. Stocks are still about 20% under their pre-shock level after two quarters. Industrial production shrinks by up to 1% after six months. Consumer prices rise, though only modestly.
The dollar strengthens continuously. The VIX and corporate bond spreads go up, and risk-free rates go down.
A shock that leaves oil supply alone plays out differently. Oil dips slightly, because tension weighs on demand. The drop in stocks is smaller, the dollar gains less, and risk measures fade after two quarters. Consumer prices fall in the medium term.
The war now
Around 20 million barrels normally move through the Strait of Hormuz every day. Some of that has been rerouted through pipelines, but the net loss still comes to 10-15 million barrels per day, or 10-15% of global supply. Oil briefly reached nearly USD 120 per barrel, more than historical patterns would predict for a shock of that size.
Everything else was calmer. Stocks fell, then began rising again after about one month. The dollar gained in March and by April was almost back where it started the year. Risk spreads widened to roughly half the level history suggests, then returned to pre-war levels. Risk-free rates rose rather than fell.
The ECB called the muted response “striking given the scale of the oil shock.” It pointed to strong US fundamentals, American oil exports and heavy investment in AI-related stocks as possible explanations.
On the trading floor
Deriv’s market commentary put dates on the swings. The Dow closed down about 400 points on 3 March. On 9 March Brent ripped to around $119.50 intraday, then slid back near the low-$90s a day later. South Korea’s KOSPI fell about 12% on 4 March and triggered circuit breakers.
The same piece cites Carson Group research covering 40 major geopolitical events over 85 years. The S&P 500 dropped an average of 0.9% in the first month and gained 3.4% by month six. A veteran energy trader quoted there said “Everyone’s an oil expert this week,” and that his position was smaller than people would expect. His worry was duration, not direction.
The ECB sees the same exposure. A longer war, or a sharper move by central banks than markets expect, could set off sudden repricing and rapid sell-offs in financial assets.
Sources
- How US financial markets react to geopolitical shocks hitting oil supply
- When the world gets loud, the group chat gets louder
