A front-row seat to risk
Professional traders do not need politicians to declare war before they see it on the screen. The first hint usually appears as a sudden bid for safe havens, a spike in crude futures, or an abrupt widening of Treasury–Bund spreads. When headlines on 24-hour news wires confirmed Israeli missiles had hit targets inside Iran on April 19 2024, Brent crude jumped more than three dollars in minutes, global stocks sold off, and yields on core government bonds fell as investors rushed for cover.
This reflexive price action is not new, but the magnitude and persistence of recent moves are.
Two large conflicts—the Russia-Ukraine war that began in February 2022 and the escalating Israel-Iran confrontation that erupted publicly in April 2024—have offered a real-time lesson in how geopolitics transmits into every corner of the market, from USD-JPY to Chicago wheat.
How war shocks travel through markets
War affects prices through three main channels: expectations for growth, the supply of key commodities, and the willingness of investors to take risk. When growth expectations fall, defensive assets such as the dollar index, the Japanese yen, and U.S. Treasuries typically rally. When supply lines are threatened, commodity prices spike and inflation expectations rise. The third channel—risk appetite—determines the valuation of equities, credit spreads, and carry trades. If the first two channels generate large enough shocks, central-bank policy can either reinforce or offset them, creating feedback loops that last well beyond the first volley of missiles.
Case study 1: the Russia-Ukraine war
On February 24, 2022, Russia invaded Ukraine. Within hours, safe-haven flows lifted gold to a 19-month high and pushed oil to levels not seen since 2014. Wheat futures, fearful of blockaded Black Sea exports, rallied more than 40 % in a single week and printed a 14-year high at $12.60 ¾ per bushel on March 7.
Energy shock and the JPY paradox
Japan imports almost all its crude oil, so the Brent surge was a double blow: higher import costs and a deteriorating trade balance. Instead of strengthening on safe-haven demand, the yen weakened against the dollar on invasion day and went on to lose roughly 11.5% over March and April. Concurrently, the Bank of Japan kept its yield-curve-control policy intact while the Federal Reserve embarked on outsized rate hikes. The result was a textbook interest-rate-differential trade: USD-JPY broke 150 in October 2022 and briefly touched 151.95 before Tokyo spent an estimated ¥9.2 trillion to cap the move.
The dollar’s wartime bid
The DXY dollar index, already in a structural bull trend, accelerated on the energy-inflation shock and hit a 20-year high of 114.78 on September 28 2022. A strong greenback amplified stress in emerging-market funding currencies and added pressure to the yen. At the same time, U.S. Treasuries served their traditional role as a liquidity haven, attracting foreign demand even as the Federal Reserve increased nominal yields.
Commodities: wheat as a bellwether
By early March 2022, Chicago wheat had risen 7% in limit-up sessions in a row, registering the largest weekly percentage gain on record in six decades and surpassing the 2008 food-crisis peak. Unlike oil, which normalized by mid-2022 as OPEC+ boosted output, grain prices stayed volatile well into 2023 because Ukraine’s export corridors opened and closed with every cease-fire rumor and drone strike. The episode reminded currency traders that commodity terms of trade can dominate classical “risk-off” narratives.
Lessons from USD-JPY during Ukraine
Many systematic FX models treat the yen as the ultimate crisis hedge, but 2022 showed its haven status is conditional. When the macro shock inflates Japan’s import bill faster than it lifts global risk premia, USD-JPY can rise even in a war. In practice, discretionary desks that faded the knee-jerk yen rally on invasion headlines and re-established longs once oil moved into triple digits caught the year’s most persistent FX trend.
Case study 2: Israel–Iran escalation
Fast-forward to April 13-19 2024. Iran launched a drone-and-missile salvo at Israel, which responded with precision strikes on Iranian territory. Asian equity indices opened sharply lower, while investors hoarded dollars, gold, and Swiss francs. Unlike 2022, oil supplies faced an immediate chokepoint risk through the Strait of Hormuz. Brent futures climbed above $95, and option skew in refined product markets priced an even steeper tail.
Safe-haven dynamics: yen redux
Reports of Israeli missiles hitting Iran pushed USD-JPY briefly below 153 as traders unwound carry positions, illustrating that the yen can still flash its safe-haven badge when the shock is perceived as short-lived and energy prices have not yet filtered into Japan’s trade deficit.
The relief was temporary: with U.S. yields sticky near cycle highs, the pair reclaimed lost ground within days, underscoring how rate-differential gravity reasserts itself once headline risk fades.
Gold at an all-time high
Gold responded even faster than crude. On April 12, 2024, spot prices printed $2,398 an ounce, a fresh record, propelled by a mix of central bank buying and geopolitical hedging.
For professional traders the trade-offs were clear: bullion outperformed inflation-protected bonds in risk-adjusted terms, but roll costs in futures flattened returns for anyone without access to physical or OTC forwards.
The Treasury bid and the dollar’s floor
U.S. 10-year yields dipped as much as 12 bps on April 15 when Middle East tensions dominated news flow, even though strong U.S. retail sales the same day argued for higher policy rates.
The episode highlighted how geopolitics can momentarily override macro data in the rates complex, while simultaneously putting a floor under the dollar because investors hedge globally in the world’s reserve currency.
Comparing the two conflicts
Why did the yen weaken during the Ukraine invasion but strengthen, if only briefly, during Israel-Iran exchanges? The answer lies in the channels outlined earlier. The Ukraine war delivered a direct energy-price shock to an import-dependent Japan, whereas the Middle East flare-up’s immediate economic hit fell on oil exporters and on inflation expectations, not on Japan’s terms of trade. Scale matters, too: Russia supplies roughly 10 % of global energy exports, Iran about 4 %. That difference was visible in the duration of the crude spike.
A trader’s playbook for modern war risk
- Safe-haven hierarchy: In the first twenty-four hours, gold and the dollar tend to lead, with the yen and Swiss franc following if bond yields fall.
- Commodity lens: Map each combatant’s export share. Energy wars hit importers like Japan, food wars squeeze emerging markets reliant on wheat and corn.
- Central-bank filter: Monitor how policy divergence amplifies or mutes the initial move. In 2022 the Fed–BoJ gap trumped haven demand.
- Liquidity management: Wider bid-ask spreads and exchange micro-halts can turn textbook hedges into traps. Size positions accordingly.
The next geopolitical pressure points
Analysts already model scenarios where further disruption in the Strait of Hormuz could remove up to 1.75 million barrels per day of Iranian supply, pushing Brent toward $90 even in a base case. Meanwhile China has been quietly stockpiling more than a million barrels per day in strategic reserves, giving Beijing optionality and potentially capping future price spikes.
For currency desks this means higher implied volatility in oil-linked units like the Norwegian krone and the Canadian dollar, and a fatter left tail in risk assets if shipping lanes close.
Final thoughts
Wars no longer hit markets in clean, one-day shocks. Instead they introduce rolling waves of headline risk, policy reaction, and supply-chain friction. The Russia-Ukraine conflict taught us that commodity-import profiles can flip traditional safe-haven scripts, while the Israel-Iran episode reaffirmed that the dollar remains the global hedge of last resort. For professional traders the edge lies in treating geopolitics as an adjustable probability in the macro model rather than a binary on-off switch. The sooner those probabilities are quantified—through energy flows, rate differentials, and option-implied distributions—the faster you can separate noise from the trades that will still be on your blotter long after the first headline scrolls off the terminal.
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