War, Commodities & Currencies: How Global Tensions Shape Markets

With rising tensions between India and Pakistan once again capturing headlines, global markets are on edge. Historically, geopolitical conflicts—especially wars—have always had deep and immediate effects on financial markets, particularly commodities like gold and oil, and on currency pairs that reflect global risk sentiment. But how exactly does war affect markets? And what does history teach us?

How Wars Impact Financial Markets

War introduces uncertainty, and uncertainty is a key driver of volatility in global markets. Investors rush toward safe-haven assets while fleeing riskier instruments. The most direct impacts are seen in:

• Gold: Considered the ultimate safe haven, gold tends to surge during war and conflict.

• Oil: Disruptions in supply chains or energy production (especially in regions like the Middle East) push oil prices higher.

• Currency pairs: War weakens currencies of involved nations and strengthens the USD, CHF, and JPY—considered safe currencies.

Major Wars & Market Reactions

1.Russia-Ukraine War (2022 - Present)

• Gold soared to near-record highs in early 2022.

• Oil spiked above $120/barrel as Russian supply came under threat.

• Ruble (RUB) collapsed, while USD and CHF strengthened.

• Global inflation accelerated due to higher commodity costs.

2. Israel-Palestine Conflict (Multiple Periods)

• Typically leads to a temporary spike in gold and oil.

• Market reactions depend on how deeply the conflict affects broader Middle East stability.

3. India-Pakistan Skirmishes (Kargil 1999, Balakot 2019)

• INR comes under pressure during escalations.

• Gold demand surges in India due to cultural and safety-driven reasons.

• Foreign investors often pull capital from Indian equity markets during spikes in border tension.

4. US-Iraq War (2003)

• Oil jumped 25% in the run-up to the war.

• Gold increased as global risk appetite dropped.

• USD initially weakened as debt levels rose due to military spending.

5. Gulf War (1990-1991)

• Oil spiked nearly 150% over 6 months.

• Gold surged before stabilizing post-conflict.

• Equity markets dropped globally during initial strikes.

The Safe Haven Trio: Gold, USD, and JPY

When global conflict escalates:

• Gold becomes the most attractive hedge against uncertainty.

• The U.S. Dollar (USD) is seen as a global reserve currency and remains resilient.

• The Japanese Yen (JPY) gains as investors unwind carry trades and seek low-risk currencies.

How Traders Should Think

In periods of geopolitical risk:

• Stay cautious of high volatility in emerging market currencies (INR, PKR, TRY, etc.).

• Track gold prices for signs of global fear.

• Watch oil markets for sharp intraday moves on news from war zones.

• Be prepared for central banks to step in with interventions or emergency policies.

Current Context: India-Pakistan Tension

If the current standoff escalates:

• INR & PKR will likely weaken.

• Gold demand in Asia will rise, pushing prices further.

• Oil markets might experience volatility depending on logistics and supply routes in South Asia.

• Broader emerging markets might see capital outflows.

Conclusion

Geopolitical tensions and wars send shockwaves through global markets—gold shines brighter, currencies wobble, and oil flows become uncertain. While investors can’t predict war, understanding its market impact allows traders and institutions to hedge wisely, react early, and protect capital.

As we navigate this uncertain period, keep a close eye on headline risk, commodities, and global safe-haven flows. The market speaks loudest in times of silence—and right now, it’s whispering fear.