How do wars and conflicts affect markets? Where does the investor seek protection?

Over the past five years, global markets have been shaken by several international conflicts. From the invasion of Ukraine by Russia to the recent intervention of the United States in Venezuela, stock markets, interest rates and currencies suffer the impacts of these events, making the geopolitical scenario a factor of constant concern for analysts and resource managers, requiring caution and the search for protection mechanisms.

The scenario is more worrying given the more aggressive stance of President Donald Trump, who has no filters to threaten enemies and even allies who oppose his plans with the use of force. The problem is how investors can protect themselves from this increase in volatility.

A study carried out by Quantum Axis shows how each of these events impacted the different markets. And the conclusion is that the effects are very different, which makes it difficult for investors to take preventive action.

In the case of the Russian invasion of Ukraine, for example, the impact was greater on oil and the stock markets had little reaction. In other crises, oil prices fell in the following days, even when they involved the Middle East.

American stock markets resisted the impacts of the start of the war in Ukraine, and rose in the crisis between China and Taiwan, while the Bovespa Index soared, but stock markets did not react as much to the other conflicts.

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Historically, geopolitical events have limited impacts on the market, notes Ermínio Lucci, CEO of broker BGC Liquidez. “Apart from the two major world wars, in which there was gigantic destruction of human capital and infrastructure, the clashes in the last 30 years have had little impact on the markets and of limited duration”, he says.

And the main assets that reacted to these conflicts were generally oil, especially in conflicts in the Middle East, due to a possible supply disruption. And other assets that moved or drew attention in geopolitical stresses were the dollar and US Treasury bonds and gold. “So generally you had oil, gold, the dollar and American bonds that served as hedges and were where the markets ran in wars or low-medium or high-intensity geopolitical events,” he says.

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There has, however, been a change in the way investors seek to protect themselves in these times of stress, assesses Lucci. In recent years, oil has been losing relevance in the global growth matrix. And, from 2025 onwards, it became clear in the case of American military action in Venezuela that the dollar and Treasuries also began to lose this correlation with investor demand for protection in these events. This has exacerbated the search for protection in gold and other metals such as silver, copper and rare metals, says Lucci.

The confiscation of Russia’s valuables abroad also encouraged central banks to increase their gold reserves, benefiting the metal. “If we look at last year and this year, there was naturally an increase in geopolitical risk and the performance of these metals was absurdly high,” he says.

Lucci points to the American fiscal situation as the main factor for the lower search for protection in US Treasury bonds and in dollars. The United States government has a very high projected fiscal deficit for 2030, of 5% to 6% of GDP. There is also all the noise of President Donald Trump’s attempted interference in the running of the Federal Reserve, the American Central Bank, and the constant threats of tariffs or even the use of force even against allies, as was the recent case in Greenland. “So clearly the markets understand that Treasuries and the dollar are no longer a safe haven or are no longer a safe haven”, says the executive.

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In the search for other currencies, he sees the Swiss franc taking over the dollar’s role as a safe haven. “There was a rebalancing of this demand for geopolitical hedging that was previously divided between the dollar and American bonds to metals in general, the Swiss franc and a little oil”, he says. “We have a more cautious market today,” says Lucci.

According to him, Bitcoin was seen as protection, but lost strength in the face of strong fluctuations, hitting US$ 126 thousand and falling back to less than US$ 70 thousand. “The problem with Bitcoin is that it is very difficult to assess whether it is expensive or cheap and even to price supply and demand”, he says.

Greater speculation

Marcos Praça, from Zero Hedge, highlights the role of speculation and emotions in the case of wars and how they end up amplifying market movements, requiring cold blood from investors to avoid the herd effect, the tendency to follow the attitude of the majority. “The immediate analysis is crude and the big investor looks at what will really be affected, what the impact is and starts speculation”, he says. What happens in most cases is speculation driven by short-term investors and will only have an effect if the conflict occurs.

He gives the example of the conflict in Iran and the United States’ threats to attack Tehran. “It has a moral and social impact, but it will not affect the fundamentals of companies in the USA or Brazil”, he says. For Praça, investors need to look precisely at what changes in the fundamentals of the economy and companies and avoid speculation and the herd effect. He differentiates these movements from so-called “black swans”, major events that really change the fundamentals of the economy, such as the 2008 global financial crisis.

Irrational reactions

What draws the most attention in this survey of conflicts is that they mostly impacted commodities in which the countries involved have some type of interference, whether in demand or in global supply, such as oil and agricultural products in the case of the Ukrainian War, says João Daronco, analyst at Suno Research.

The second point is that the market generally exaggerates price assessments. “If you take the Russian invasion of Ukraine, oil reaches close to US$120 per barrel, but then it tends to fall to historical averages or close to what it was before the conflict,” he says.

According to Daronco, this exaggeration occurs because people are frightened by uncertainty and act irrationally, which explains much of the fall or rise. “But, after this movement, there is a normalization, as occurred after the invasion of Venezuela by the United States, when oil fell due to the expectation of an increase in Venezuelan production, which was not confirmed”, he says.

Avoid the waves

For Daronco, the lesson for investors is that there are times when the market as a whole predicts some type of event or crisis that is not confirmed at the end of the day. And people often lose money trying to get out of the market. “I think the first lesson is that there will always be crises, but much more money is lost trying to anticipate them than in the crises themselves,” he says. “We saw this at the end of 2024, when fear about Brazilian public accounts caused the dollar to soar and the stock market to fall and many people sold shares and bought the dollar”, he recalls. “Now Bovespa is one of the fastest rising stock exchanges in the world and the dollar is returning to R$5.20”, he says.

He also cites the case of Trump’s tariffs in March last year, which brought down the S&P500 index and two months later the American stock market had already recovered. The second lesson for investors is to be careful in times of stress and euphoria. “The market as a whole is very exaggerated on both the positive and negative sides and investors should not get carried away, they should not jump on the waves, which is a normal human reaction, of following the group, the herd effect, of seeing everyone running and running too”, he concludes.