As tensions between the United States and Iran intensify, global markets are beginning to exhibit a familiar but dangerous pattern: volatility without clarity. Gold and silver-traditionally considered safe havens-are falling. Oil is oscillating near critical resistance levels. Technical signals are flashing opportunities, yet seasoned investors are hesitating.
This is not irrational behavior. It is a recognition that in war-driven environments, fundamentals override technicals, and sentiment can reverse markets overnight.
The emerging reality is that markets are transitioning into a war economy framework, where geopolitical developments-not charts-dictate price direction.
At first glance, falling gold prices amid rising geopolitical risk appear counterintuitive. However, this reflects a deeper structural shift. The strengthening US dollar, rising bond yields, and institutional deleveraging are pulling liquidity away from commodities. In short, investors are prioritizing cash and dollar exposure over traditional hedges.
Yet history cautions against misreading this phase. During the early stages of the Russia-Ukraine war, energy markets initially fluctuated before entering a sustained rally. A similar trajectory may now be unfolding.
Policymakers, particularly in vulnerable economies like Pakistan, must act decisively to mitigate risks while leveraging emerging opportunities.
The International Energy Agency (IEA) estimates that nearly 20% of global oil supply passes through the Strait of Hormuz. Any disruption-even partial-could push oil prices beyond $120 per barrel, reigniting global inflation.
In times of conflict, capital does not disappear-it rotates.
The first and most obvious beneficiary is the energy sector. Oil and gas companies historically outperform during geopolitical disruptions due to constrained supply and heightened demand. The Russia-Ukraine conflict saw energy stocks outperform global indices by as much as 30-60%, according to Bloomberg data.
Closely following energy is the defense sector. With global military spending already exceeding $2.4 trillion (SIPRI), any escalation in the Middle East will accelerate procurement cycles, particularly in advanced weapons systems, cybersecurity, and drone technologies.
Beyond these, strategic commodities such as copper, uranium, and lithium stand to gain from supply chain disruptions and the long-term push toward energy security.
What remains critical, however, is discipline. War markets are notoriously unforgiving to speculative behavior. The temptation to chase momentum-especially in oil-must be resisted. As the old rule holds: never buy into fear or euphoria.
For Pakistan, the implications of a US-Iran conflict are immediate and severe.
The country imports nearly 70-80% of its energy needs, making it acutely vulnerable to oil price shocks. A $10 increase in global oil prices can add approximately $1.5-2 billion to Pakistan’s import bill, placing additional strain on an already fragile current account.
Simultaneously, a stronger US dollar is likely to exert downward pressure on the Pakistani rupee, further increasing the cost of imports and debt servicing.
Yet crises often create asymmetric opportunities.
Rising oil prices typically boost economic activity in Gulf countries, which can translate into higher remittance inflows for Pakistan. Additionally, prolonged instability in the Strait of Hormuz could elevate the strategic importance of Gwadar and the broader CPEC corridor as alternative trade and energy routes.
Pakistan’s defense industry may also find niche opportunities in regional demand for cost-effective military equipment, particularly in drone and surveillance technologies.
The challenge for Pakistan is not merely to survive the shock but to strategically position itself within it.
First, energy diversification is no longer optional. Accelerating investment in renewables and domestic resources such as Thar coal can reduce exposure to external volatility.
Second, the government must explore oil hedging mechanisms to stabilize import costs in the face of price spikes.
Third, maintaining adequate foreign exchange reserves-ideally covering at least three to four months of imports-is essential to buffer against external shocks.
Finally, Pakistan must pursue economic neutrality with strategic pragmatism. In an increasingly polarized global environment, over-alignment carries risks. Economic resilience will depend on maintaining functional ties with China, the Gulf, and Western economies simultaneously
The unfolding US-Iran confrontation is more than a geopolitical flashpoint-it is a systemic shock to global markets. In such moments, the difference between loss and opportunity lies in discipline.
Investors must shift focus from short-term signals to structural trends: energy security, defense spending, and commodity resilience. Policymakers, particularly in vulnerable economies like Pakistan, must act decisively to mitigate risks while leveraging emerging opportunities.
Because in war-driven markets, one truth remains constant:
Those who react emotionally lose. Those who prepare strategically endure-and often emerge stronger.
The writer is Foreign Research Associate, Centre of Excellence, China Pakistan Economic Corridor, Islamabad.