As artillery echoes across the Gulf and tensions in the Middle East escalate, even the world’s traditional safe-haven assets have begun to experience violent swings.
The Middle East remains the heart of global oil production. At its center lies the Strait of Hormuz, widely regarded as the most critical maritime chokepoint in the global energy system. Any disruption to energy production or shipping in the region carries immediate consequences for global markets. Under conditions of war or prolonged military confrontation, the possibility of supply interruptions quickly feeds into oil prices—and with it, renewed fears of inflation.
In such an environment, assets traditionally considered “safe havens” are expected to provide shelter from geopolitical risk. Yet investors are increasingly discovering that protection today requires more than political neutrality. It must also withstand the possibility of a renewed inflation shock.
Gold was the first to react.
Prices initially surged as the conflict intensified, reflecting a familiar pattern in periods of geopolitical stress. But the rally quickly gave way to sharp volatility, with heavy profit-taking and tightening liquidity pushing the metal into large intraday swings.
The result has been a confusing picture for investors: the very assets designed to offer protection are themselves fluctuating violently.
Energy Shock and Global Supply Risks
The sensitivity of markets to Middle Eastern tensions is rooted in the region’s role in global energy supply. According to the U.S. Energy Information Administration (EIA), roughly 20% of the world’s petroleum liquids consumption moves through the Strait of Hormuz each day, making it the single most important oil transit route in the world.
Shipping data compiled by tanker-tracking firms such as Kpler and Vortexa show that an average of 17–18 million barrels of crude oil and refined products per day pass through the narrow waterway connecting the Persian Gulf to global markets.
Any sustained disruption would ripple through global energy supply chains within days.
In recent weeks, tanker insurance premiums for vessels operating in the Gulf have already begun to climb, according to shipping brokers cited by Reuters, reflecting rising geopolitical risk in maritime transport.
Even modest disruptions can have outsized effects. During previous regional crises—including the 2019 tanker attacks and the early stages of the Russia-Ukraine war—oil prices reacted sharply to perceived threats to supply routes, even when physical disruptions remained limited.
This structural vulnerability explains why energy markets often move before financial markets fully process geopolitical shocks.
Gold’s Safe-Haven Reputation Faces a Stress Test
In theory, geopolitical conflict should support gold.
Yet the recent price action has been far from orderly.
After an initial jump triggered by the outbreak of hostilities, gold prices quickly retreated as investors took profits and liquidity conditions tightened. Large institutional traders appear to have unwound positions accumulated during earlier rallies, amplifying short-term volatility.
Analysts point to the structure of modern financial markets as a key reason for these swings.
Quantitative trading strategies, options positioning, and algorithmic liquidity provision now play a far larger role in commodity markets than during earlier geopolitical crises. As a result, price movements can accelerate rapidly once certain technical thresholds are crossed.
In particular, derivatives markets can create feedback loops. When option market makers hedge positions under so-called negative gamma conditions, they are forced to buy when prices rise and sell when prices fall—mechanically amplifying volatility.
In such an environment, gold can temporarily behave less like a defensive asset and more like a risk asset.
This phenomenon has been visible before. During the early phase of the 1991 Gulf War, gold prices actually declined on the first day of the conflict as traders unwound positions built in anticipation of hostilities.
Today’s market structure makes those reversals faster and more violent.
The Dollar’s Return as the Ultimate Liquidity Haven
While gold struggled to maintain momentum, another traditional refuge regained strength: the U.S. dollar.
In times of severe uncertainty, global investors tend to prioritize liquidity above all else. The dollar remains the core of the global financial system, dominating international trade settlement, cross-border funding markets, and foreign-exchange reserves.
According to data from the Bank for International Settlements, the U.S. dollar accounts for nearly 90% of global foreign-exchange transactions, reinforcing its role as the primary vehicle for global liquidity.
This structural dominance often becomes most visible during crises.
As geopolitical tensions intensified, demand for dollars increased, pushing the U.S. Dollar Index higher even as other traditional safe-haven currencies such as the Japanese yen and the euro weakened.
Part of the divergence reflects energy exposure.
Both Japan and the eurozone remain heavily dependent on imported energy. Rising oil prices therefore translate quickly into worsening trade balances and higher inflation expectations, undermining their currencies during energy shocks.
The United States, by contrast, has become one of the world’s largest energy producers and exporters following the shale revolution.
That structural shift has quietly altered the geopolitical transmission mechanism of oil shocks.
Shipping Costs and the Inflation Transmission Channel
Beyond oil prices themselves, logistics costs could become the next channel through which geopolitical risk spreads to the global economy.
During the pandemic, disruptions in shipping routes and port operations triggered a surge in global freight rates, contributing significantly to the inflation spike seen across advanced economies.
A similar mechanism could emerge if Middle Eastern tensions affect maritime security.
Shipping analysts cited by Reuters note that insurance costs for vessels transiting the Persian Gulf and nearby waters have already begun to rise. In extreme scenarios, shipowners may reroute cargo or delay shipments, increasing delivery times and freight costs.
Such changes can cascade through supply chains.
Higher shipping costs raise import prices, which in turn feed into consumer inflation. For central banks already navigating fragile economic conditions, the combination of rising energy costs and supply-chain friction presents a particularly difficult policy challenge.
Markets Remain Calm—For Now
Despite the turbulence in commodity markets, global equity markets have so far reacted with surprising restraint.
Major indices in the United States and Europe have experienced volatility but avoided the kind of sharp sell-offs often associated with major geopolitical crises.
Part of this resilience reflects uncertainty about the duration of the conflict.
Historically, financial markets tend to stabilize once the scope of military events becomes clearer. During both Gulf Wars, for example, equities rebounded within months once the initial shock passed.
The key variable today remains energy supply.
If oil exports from the Gulf continue largely uninterrupted, the current turbulence may remain contained. But a sustained disruption could alter inflation expectations globally and reshape central-bank policy trajectories.
For investors, that uncertainty has become the defining feature of the current environment.
Author’s Views
The recent turmoil reveals an important shift in how safe-haven assets behave in the modern financial system. Gold, once considered a stable geopolitical hedge, is now deeply embedded within derivatives markets and quantitative trading frameworks. As a result, its short-term behavior increasingly reflects liquidity dynamics rather than purely geopolitical fundamentals.
At the same time, the episode underscores the enduring structural role of the U.S. dollar. Even as debates about “de-dollarization” continue in political and academic circles, moments of global stress consistently drive capital back toward dollar liquidity. In practice, the dollar’s dominance is reinforced—not weakened—during crises.
For investors navigating a world of persistent geopolitical tension, the lesson may be simple but uncomfortable: in extreme scenarios, liquidity itself becomes the ultimate safe haven.