War in Iran and market volatility: analysis of the most affected sectors, mistakes to avoid, and long-term investment strategies to navigate periods of conflict without compromising capital.
A Geopolitical Shock That Rekindles Uncertainty
The recent military escalation involving Iran has revived a well-known reflex in financial markets: the search for protection in the face of uncertainty. Every major conflict in the Middle East immediately triggers a rise in volatility, largely due to the region’s strategic role in global energy supply.
The mere threat of disruption in the Strait of Hormuz — through which a significant share of the world’s oil passes — is enough to send energy prices sharply higher. This rapid reaction reflects a constant truth about markets: they dislike uncertainty.
However, while volatility appears immediately, the deeper economic consequences are rarely as simple as the headlines suggest. A serious investor must distinguish between the short-term emotional shock and the long-term structural trends.
Which Sectors Are Truly Vulnerable?
Armed conflicts do not affect all sectors uniformly.
Airlines and maritime transport are typically among the first casualties. A sharp increase in fuel costs combined with a slowdown in traffic directly pressures their margins.
Companies dependent on complex global supply chains may also suffer, particularly when trade routes become uncertain or more expensive.
The consumer discretionary sector becomes vulnerable if household confidence declines. When the economic environment becomes more uncertain, non-essential spending is often postponed.
Highly leveraged companies are also exposed. If war intensifies inflationary pressures, central banks may maintain or raise interest rates, increasing the cost of capital.
Finally, companies operating in unstable or politically sensitive jurisdictions may face elevated risks such as regulatory restrictions, asset freezes, or international sanctions.
Conversely, some sectors tend to be more resilient, and may even temporarily benefit from the situation. Energy and defense are classic examples. However, investors should avoid a common mistake: confusing a cyclical surge driven by war with a lasting structural improvement.
The Temptation to Predict the Future
Every conflict generates an avalanche of scenarios: regional escalation, international intervention, rapid stabilization, or a prolonged oil shock.
Yet history shows that markets quickly incorporate these hypotheses — often before the facts themselves become clear.
Howard Marks, co-founder of Oaktree Capital, summarizes this reality well:
“You can’t predict. You can prepare.”
— Howard Marks
(Oaktree Capital Memos)
A disciplined investor does not attempt to precisely anticipate geopolitical developments. Instead, they build a portfolio capable of withstanding different scenarios.
Believing that one can determine with certainty the outcome of a conflict is a dangerous illusion. Military and diplomatic situations evolve rapidly, sometimes within just a few days.
The False Comfort of Cash
In times of war, the instinctive reaction is often to sell and wait for better days.
This strategy has two major limitations.
First, inflation may accelerate, particularly if energy prices rise. The purchasing power of cash then gradually declines.
Second, financial markets tend to rebound before the geopolitical climate is fully stabilized. Waiting for perfect visibility often means buying back at higher prices.
Maintaining a reasonable portion of cash can be useful to seize opportunities. However, keeping all capital on the sidelines out of fear of an uncertain scenario is rarely an optimal long-term strategy.
Emotional Discipline: A Decisive Factor
Behavioral studies show that investors often underperform because of emotional decision-making.
Selling in panic, buying under the influence of euphoria, or following the crowd frequently leads to recurring losses.
I discussed this dynamic in detail in the article explaining why the majority of investors lose money in the stock market.
In times of war, intense media coverage amplifies psychological biases. Repeated exposure to alarming images and analyses heightens the perception of risk, even when the real economic impact remains limited.
Warren Buffett also reminds us of a fundamental principle:
“Be fearful when others are greedy and greedy when others are fearful.”
— Warren Buffett
(Berkshire Hathaway Shareholder Letters)
This approach does not suggest recklessness. Rather, it highlights the importance of acting rationally when the majority reacts emotionally.
The Economy Does Not Stop
One element is often overlooked in the analysis of conflicts: global economic activity does not stop.
Companies continue to produce, sell, and innovate. Contracts are executed. Digital services keep operating. Trade flows adjust.
Some fragile companies disappear during economic shocks. Strong, well-capitalized businesses with durable competitive advantages generally navigate these periods with resilience.
Wars in the past have triggered economic adjustments, sometimes profound ones. However, they have not halted the overall progression of productivity and wealth creation.
Short-Term Strategy: Prudence and Clarity
It is possible to adopt short-term tactical strategies, particularly in commodities or in companies directly exposed to rising energy prices.
However, these movements are often rapid and difficult to time. A sharp increase driven by a geopolitical shock can quickly fade if the situation stabilizes.
Any short-term strategy must be clearly defined and kept separate from long-term allocation. Confusing tactical speculation with structural investment is a frequent source of mistakes.
Identifying High-Quality Companies Under Pressure
Periods of widespread panic sometimes lead to indiscriminate market declines.
It is during these moments that high-quality companies can become temporarily undervalued.
Several criteria should guide the selection:
A strong balance sheet with manageable debt.
Strong cash flow generation.
High and sustainable profitability.
A clear competitive advantage.
Geographic diversification that reduces political risk.
Companies dependent on unstable geopolitical environments or characterized by weak operational quality are more vulnerable.
Entering Gradually: The Accumulation Method
In an uncertain environment, investing in a single lump sum exposes the investor to unfavorable timing risk.
A gradual approach, such as dollar-cost averaging, helps reduce this uncertainty. Investing at regular intervals smooths the impact of short-term market fluctuations.
This method promotes discipline and reduces the influence of emotions on investment decisions.
Historical Perspective: The Primacy of the Long Term
An analysis of markets over several decades shows that geopolitical conflicts, while destabilizing, have not prevented the long-term growth of developed markets.
Periods of war appear in retrospect as episodes of volatility within a broader trajectory of value creation.
A long-term-oriented investor prioritizes the strength of businesses and diversification rather than attempting to predict events.
Conclusion: Investing with Discipline Rather Than Fear
The conflict involving Iran is a reminder that geopolitical uncertainty remains a permanent feature of the global economy.
Investing during wartime requires rigorous analysis, strong emotional discipline, and a long-term perspective.
Selling everything out of fear of an extreme scenario can lead to costly mistakes. Rushing into sectors that are rising sharply may also result in paying excessive valuations.
Discipline, diversification, and the selection of high-quality companies remain the most reliable pillars for navigating periods of turbulence.
Yes, if the approach is disciplined, diversified, and focused on the long term.
Air transportation, highly indebted companies, businesses dependent on complex supply chains, and companies exposed to geopolitically unstable regions.
No. A balanced exposure to the markets allows investors to benefit from unpredictable rebounds while managing risk.