30 Mar When War Hits Markets: What History Tells Us — and What You Should Do Now

When War Hits Markets: What History Tells Us — and What You Should Do Now

If you’ve opened your super statement recently, or glanced at market news over the past few weeks, you’ve probably felt a familiar unease. Petrol prices are climbing. The news cycle is relentless. And it’s hard not to wonder what it all means for your financial future.

You’re not alone — and your instinct to pay attention is a reasonable one. But as we’ll explain below, how you respond to market turbulence matters far more than the turbulence itself.

What’s Actually Happening Right Now

In late February 2026, the United States and Israel launched military action against Iran. Almost immediately, the conflict had a dramatic effect on global oil markets, with the Strait of Hormuz — a critical chokepoint through which roughly 20% of the world’s daily oil supply flows — effectively being shut down.

The result was one of the fastest oil price spikes in recorded history. In early March, the oil price (WTI) surged intraday to just shy of USD$120 per barrel — more than double where it started the year. From their record highs, Australian shares fell around 9%, US shares dropped approximately 7%, Eurozone shares fell 11%, and Japanese shares declined 12%.

Closer to home, the RBA has responded to renewed inflation pressures. The RBA’s decision to hike rates to 4.1% means it has now reversed all but one of the three rate cuts seen last year — cuts that themselves followed 13 rate hikes in 2022 and 2023.

And at the petrol bowser? In Australia, each USD$1 rise in the oil price adds roughly one cent per litre to petrol prices — meaning an oil price settling around USD$100 would translate to a rise of approximately 40–50 cents per litre at the pump. Current average capital city petrol prices of around $2.45 per litre, if sustained, would add roughly 1.5% to inflation and approximately $114 per month to the average household’s fuel bill.

That’s real money. No wonder confidence has taken a hit.

The Key Transmission Mechanism: Why Oil Matters So Much

If you’re wondering why a conflict in the Middle East affects your share portfolio in Sydney or Melbourne, it comes down to oil and what it does to the broader economy.

Higher oil and gas prices act like a tax on households and businesses, leaving less money to spend elsewhere. Past oil price surges have played a role in US and global economic downturns, and the threat becomes significant once prices roughly double — which they have come close to doing since the start of the year.

Goldman Sachs estimates that an oil price spike to around USD$100 per barrel knocks approximately 0.4% off global growth in the year ahead, with Europe and Asia — as net energy importers — more affected than the US, which is a net energy exporter. While Australia is also a net energy exporter, it is likely to see a similar-sized hit to growth due to weaker consumer and business confidence and reduced household disposable income.

Our rough estimate is that oil around USD$100 per barrel will directly add around 0.8% to inflation in Australia, pushing annual inflation to around 4.6%. Combined with the RBA’s rate hike, this creates a double squeeze on households already stretched by the cost of living.

At the same time, share markets have fallen because the surge in oil prices threatens a negative combination of higher inflation, rising bond yields, and potentially further central bank rate hikes — alongside lower economic growth and corporate profits.

What History Actually Tells Us

Here’s where things get more reassuring — at least from a historical perspective.

Oil Price Spikes Tend to Be Temporary

Analysis of six major geopolitical shocks — from the Iran–Iraq War in 1980 to Russia’s invasion of Ukraine in 2022 — shows a fairly consistent pattern: oil prices often spike hard and fast, but then give the gains almost entirely back. Historically, oil prices have fallen back to pre-shock levels in approximately four to five months.

The current shock is one of the most violent early moves on record — a near-60% spike in a few trading days puts the US/Israel conflict near the top of the pack for speed and magnitude of the initial oil price reaction. Dramatic? Yes. Unusual for what tends to follow? Perhaps not, if history rhymes.

The most important question isn’t how high oil prices go — it’s how long they stay there.

Futures markets currently have the WTI oil price back below USD$70 per barrel by the end of 2026, with a rapid decline expected over the coming months. That’s not a guarantee, but it reflects market expectations that the disruption will be resolved.

Shares Typically Recover

Looking at share markets around major geopolitical events, the typical outcome is a sharp fall of around 8%, followed by a recovery of around 14% over the following 12 months. Of course, there are wide ranges around this — past performance is not a reliable indicator of future returns.

This is consistent with the broader historical record. The value of $1 invested in Australian shares in 1900 — with dividends reinvested — would have grown to approximately $1 million by now, compared to around $998 for bonds and $278 for cash. Shares have outperformed significantly over the long run, but only because investors stayed the course through many episodes of fear and uncertainty along the way.

Two Scenarios to Watch

Investment managers and economists are weighing up two broad scenarios:

A limited war scenario (currently assigned around 60% probability as a base case) sees President Trump finding a political off-ramp — likely driven by pressure from rising petrol prices ahead of the US midterm elections. This would ultimately mean a selling opportunity for oil and a buying opportunity for shares. Trying to time it precisely, however, would be very difficult.

A prolonged war scenario (around 40% probability) would see Iran continue to restrict oil supplies and inflict maximum economic and political costs — potentially pushing oil prices to USD$150 or beyond, with a sharper and more sustained fall in shares.

The honest answer is: no one knows exactly how this unfolds. But the weight of historical evidence suggests disruptions of this nature, while painful, are temporary.

What This Means for Everyday Australians

Let’s bring this to life with a few realistic examples.

David and Karen, aged 58 — approaching retirement

David and Karen have around $850,000 in combined super, split between a balanced and a growth option. They’ve watched their balances drop by several thousand dollars in recent weeks and are wondering whether to move to cash.

The temptation is understandable — but the risk of doing so is real. If you try to time the market and miss the 40 best trading days in Australian shares, your long-run return drops from around 9.4% per annum to just 3.7% per annum. Those best days often happen quickly and unpredictably — frequently during volatile periods just like this one.

With potentially seven or more years until they fully retire, David and Karen’s super has time to recover. The more important question is whether their current asset allocation — not their short-term reaction — is appropriate for their timeline and risk tolerance.

The Nguyen family — dual income, building wealth in super

Michael and Linh are in their early 40s, making regular super contributions each fortnight. For investors still accumulating, market downturns are actually a feature of long-term investing — roughly two out of every ten years produce negative returns in Australian shares, yet there have been no negative returns over any rolling 20-year period on record.

Their regular contributions are now buying super units at lower prices — a process sometimes called dollar-cost averaging. If history is any guide, those units will be worth considerably more by the time they retire.

Sandra, aged 63 — single, watching her Age Pension eligibility

Sandra is a few years from the Age Pension age (currently 67 for most Australians) and has around $320,000 in super, mostly in a conservative option. Her main worry is that a prolonged downturn could reduce her super balance before she retires.

For Sandra, the key is to ensure her asset mix genuinely reflects her shorter investment horizon and lower capacity for large fluctuations. She also needs to understand how her super balance may interact with the assets test for the Age Pension. Importantly, changes to deeming rates were also rolled out in March 2026, which could affect how her financial assets are assessed by Centrelink. This is an area where getting personalised advice is genuinely valuable.

Five Principles to Keep You Grounded

Rather than trying to predict geopolitical outcomes — which no one can do reliably — here are five principles worth holding onto:

1. Volatility is normal, not exceptional. Share markets are usually calm, but periodically they tumble sharply. The key insight is that these downturns, while uncomfortable, have always eventually passed.

2. Time in the market beats timing the market. Selling out of growth assets during a downturn and trying to re-enter at the right moment is extremely difficult to execute well. Most investors who try to time the market end up missing the recovery.

3. Compounding needs time and growth assets to work. Switching to cash during downturns locks in losses and removes the compounding engine that builds wealth over decades.

4. Your emotions are your biggest risk right now. Investment markets move more than fundamentals justify, because investor emotion plays a huge role. The classic pattern is that investors sell at or near the bottom — when fear peaks — and buy near the top when confidence is high. This is the opposite of what builds wealth.

5. Diversification is doing its job. If your portfolio includes a mix of Australian and international shares, bonds, property, and cash, different assets will behave differently in this environment. That’s the point — the mix is designed to smooth out some (not all) of the ride.

A Simple Decision Framework

Ask yourself these questions before making any changes to your investments or super:

Quick Checklist: What to Do Right Now

• [ ] Log in and look at your super balance — then close the app. Knowing where you stand is useful. Checking it daily isn’t.
• [ ] Check your investment option. Is your super in a balanced, growth, or conservative option? Does that still make sense for your age and timeline?
• [ ] Don’t switch to cash without advice. If you’re considering moving your super to a cash or conservative option, speak with an adviser first.
• [ ] Check your insurance inside super. Periods of financial stress are a good reminder to ensure your income protection and life cover are still appropriate.
• [ ] If you’re within five years of retirement, consider whether you have a cash buffer outside super to cover one to two years of living expenses — so you’re not forced to sell growth assets in a downturn.
• [ ] If you’re still working, keep contributing. Your regular contributions are buying assets at lower prices.
• [ ] Retirees drawing a pension: review your minimum drawdown strategy and whether your cash allocation is sufficient to avoid selling shares at depressed prices.

The Bigger Picture

The US/Israel–Iran conflict is a serious geopolitical event with real consequences for oil prices, inflation, interest rates, and share markets. We are not dismissing those impacts — they’re real, and they matter.

But market history is also clear: events like this are disruptive, not permanent. The economy and markets have absorbed wars, oil shocks, financial crises, pandemics, and recessions — and over time, diversified long-term investors have been rewarded for staying disciplined.

The goal right now isn’t to predict what happens next. It’s to make sure your financial plan is robust enough to handle uncertainty — whatever form it takes.

Talk to an Adviser Before You Act

If you’re feeling uncertain about your situation, that’s completely understandable — and it’s exactly the right time to speak with a financial adviser. A good adviser won’t tell you what markets will do. But they can help you make sure your investment strategy, super options, and retirement timeline are aligned — so you’re not making reactive decisions you might regret.

We’re happy to have that conversation. Feel free to reach out and book a time — no pressure, no jargon.

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)