Comparison of the US-Iran war and historical wars: Is the trend of stocks, bonds, and oil more similar to the Gulf War period?

The risks facing the oil market are undoubtedly higher than ever. While the Trump administration in the United States seeks peaceful negotiations with Iran, the White House is still deploying more troops in the Middle East. According to U.S. Department of Defense officials, the Pentagon is considering sending up to 10,000 ground troops to the Middle East, including infantry and armored vehicles, to provide more military options. These troops will enhance the military capabilities of the approximately 5,000 Marines and thousands of paratroopers already deployed to the region, and there is speculation that future activities may take place near Iran and its energy hub, Khark Island. At the same time, traders are also warning that every day of conflict exacerbates energy shocks, pushing the global economy, stocks, and bonds into greater danger. As this conflict, which began on February 28th, approaches its one-month mark, how does it compare to past geopolitical conflicts in history? Let's take a brief look back: The largest oil supply crisis in history The International Energy Agency stated in mid-month that the closure of the Strait of Hormuz has caused the most severe supply disruption in the history of the global oil market. (The Suez Canal War, Arab oil embargo, Iranian Revolution, Gulf War, Iran-Iraq War) The Strait of Hormuz is a key chokepoint that supplies about 20% of the world's daily oil consumption of 100 million barrels. Currently, tanker shipments in the strait have been significantly reduced. While Saudi Arabia has redirected some supply through existing pipelines to other export terminals, including analysts from Rapidan Energy Group, there is still a daily blockage of 10 million barrels or more of oil supply in the Middle East. Threats to oil tankers from Iran and the shutdown of major oil production facilities in the Middle East could have far-reaching effects on the oil and natural gas markets long after the conflict ends. Unlike previous disruptions lasting for months or longer, the actual Strait of Hormuz is blocked, limiting the ability of Saudi Arabia and other major crude exporting countries to increase idle production capacity. Comparison of oil price increases Since the beginning of the year, global benchmark Brent crude oil futures prices have soared by about 80%, even though earlier reports of negotiations between the U.S. and Iran sparked significant selling. As shown in the chart below, oil prices have surged since the outbreak of the conflict last month when drones and missiles began flying over the Strait of Hormuz, similar to the period after the 1990 Gulf War. The Gulf War was a partial war launched by a coalition of 34 countries led by the United States against Iraq from August 2, 1990, to February 28, 1991. The main combatants were multinational forces and Iraq, with about 660,000 and 860,000 troops respectively. Meanwhile, the increase in oil prices at the moment is actually much higher than during the 2022 Russia-Ukraine conflict. Of course, before the outbreak of the Russian-Ukrainian conflict in 2022, the global economy was experiencing a robust recovery from the epidemic - at that time, oil prices were much higher than at the beginning of this year. However, it is important to note that even though most of the expected oil supply disruptions did not occur that year, oil prices remained high for several months. Comparison of U.S. stock trends This Thursday, the S&P 500 and Nasdaq indices recorded their largest single-day drops since the start of the U.S.-Iran war on February 28th. Judging from the performance of U.S. stocks since the outbreak of this conflict, the selling process is basically consistent with the negative reactions after previous geopolitical shocks. Prior to the outbreak of this conflict, concerns about the potential disruption of software, financial services, and other industries due to artificial intelligence had already led to a rollback of the S&P 500. Investors say that since the conflict broke out, the high valuation of the U.S. stock market has further exacerbated some volatility. Overall, the impact of geopolitical conflicts with greater pressure on U.S. stocks remains the Gulf War in the 1990s. When compared to the current stage of the Russia-Ukraine conflict, the S&P 500 index had remained essentially flat at the beginning of the conflict. However, considering that the current geopolitical shock has exacerbated inflation, ultimately leading to a decrease in corporate profits and an increase in borrowing costs, the S&P 500 index still fell by 21% in the first half of 2022. Comparison of U.S. Treasury sell-offs As shown in the chart below, the increase in the yield of 10-year U.S. Treasury bonds since the outbreak of the U.S.-Iran conflict is roughly comparable to that during the Russia-Ukraine conflict and the Gulf War at the same stage. One difference is that before the 2022 Russia-Ukraine conflict, the yield on U.S. Treasury bonds was still low as the Federal Reserve was trying to revive the economy after the epidemic. However, the uncertainty about interest rate prospects has resulted in yields being at relatively high levels. Even so, the selling pressure on U.S. Treasury bonds has not diminished, and the yield on 10-year U.S. Treasury bonds has climbed to one of the highest levels since July of last year. After the invasion of Kuwait by Iraq in 1990, the speed at which the 10-year U.S. Treasury yield rose even surpassed the current situation, as the United States was much more dependent on energy at that time. The sale of strategic oil reserves is almost on par with the Russia-Ukraine conflict The United States has pledged to contribute a record amount of crude oil to the International Energy Agency member countries, about 172 million barrels, the largest release of strategic oil reserves in history. The oil reserves released this time are located in salt caverns near the Gulf of Mexico in the United States, slightly smaller in scale than the emergency release authorized by former President Biden during the 2022 Russia-Ukraine conflict. From a historical standpoint, the scale of these two releases is significant, indicating that the White House is becoming more proactive in using strategic reserves to deal with price shocks or economic threats. This article is reprinted from "Cai Lianshe", author: Xiaoxiang; GMTEight Editor: Feng Qiuyi.