What past conflicts can teach us about volatility in a crisis

Wars linger in our memories, but not on markets. The real impact comes early, in a sudden blast of volatility at the onset of any major conflict, when a stream of contradictory headlines can influence your investment decisions. After a few weeks, though, markets tend to calm down.

It’s in those early days when you see more exaggerated intraday swings, which, for short-term sophisticated traders, can lead to increased trading activity in leveraged and inverse-leveraged ETFs.

If you don’t want your capital to become collateral, you’ll need to build conviction in your investment ideas. To do that in an environment like this, it helps to understand how markets have reacted in past conflicts. Here’s how you can navigate markets in periods of uncertainty – even in wartime.

Markets aren’t often as chaotic as they seem. Pick your conflict – the simmering U.S.-Iran War, Russia’s invasion of Ukraine, the U.S.-Iran War (2003) – and you start to see a similar pattern to emerge:

Fear and volatility immediately spike at the outset of the conflict

Markets stabilize as more information surfaces

Investors refocus on fundamentals rather than headlines

Usually, volatility subsides within one to four weeks after the start of a major military escalation. According to research by MSCI, elevated volatility typically lasts about 20 days from the start of the conflict . That relatively short time is largely because many of the major conflicts in recent years have had a limited economic impact beyond the region, says MSCI. It’s not yet clear, of course, how long the current conflict will last and whether markets will remain volatile for longer.

Source: “How modern wars affected market performance and volatility,” MSCI

If you look back over the past 20 major global conflicts, you’ll find that the S&P 500 fell an average of 6% from the first day of the conflict to the market trough. The depth and duration of the selloffs over those periods all followed this pattern, even if the conflict drags on for years. On average, the market took 28 days to get back to its pre-conflict levels.

Broad market selloffs at the start of hostilities can mask the volatility at the sector level, particularly in commodities like oil. More than a third of the 30 trading days since the outbreak of the U.S.-Iran war have seen oil prices rise and fall by more than 10%. At one point, prices surged nearly 70%.

Source: Bloomberg, as at April 30, 2026

When U.S. President Donald Trump warned that Iran could be sent “back to the stone age” if it failed to reopen the Strait of Hormuz by April 6, crude prices climbed higher. However, given the extremity of the threat – and investors’ questioning the President’s propensity for extreme rhetoric – some traders viewed the deadline itself as a tactical opportunity rather than a directional signal.

On April 7, crude prices pulled back as immediate escalation failed to materialize. The BetaPro Crude Oil Inverse Leveraged Daily Bear ETF (HOD) that morning posted a 16% one-day gain, illustrating how geopolitical events can contribute to short-term market volatility.

Whether oil prices will continue to spike remains to be seen. A study by the Federal Reserve Bank of Dallas, looking at past conflicts that disrupted the global oil supply, found that oil price volatility is often driven more by fears that the global economy is slowing than by concerns about running out of oil. That suggests that oil markets could normalize relatively quickly if a resolution in the latest Middle East conflict is reached.

Uncertainty – and by extension – volatility tends to ease as the fog of war lifts. Even if a conflict continues to simmer, research shows that markets will adapt to the new normal. There’s already some indication that this adjustment is underway in the latest conflict.

At the time of writing, the CBOE VIX Index, which measures volatility based on S&P 500 index options, has fallen to levels not seen since early February. While unresolved conflict always carries the risk of sudden shocks to the markets, if you’re looking to navigate short-term movements, take a moment to understand what’s driving the volatility and how long those price spikes have historically lasted. Do that and you can protect yourself from any unnecessary self-inflicted wounds.

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Published July 31, 2026