Yusuf Mansur

Wars do more than redraw political maps—they also reshape financial markets. Among the assets most sensitive to geopolitical conflict are gold and oil, yet they respond to crises in fundamentally different ways. Oil reacts directly to disruptions in supply and maritime trade routes, while gold is influenced by a much broader set of factors, including US interest rates, the strength of the dollar, inflation, central bank purchases, and geopolitical uncertainty.

As a conflict approaches its end, investors begin asking a different question. Rather than wondering whether prices will rise or fall, they seek to determine how much of the recent price movement reflects genuine economic fundamentals and how much represents a temporary geopolitical risk premium driven by fear and uncertainty.

For oil, much of the wartime price surge has reflected concerns over potential supply disruptions rather than actual shortages. Whenever markets fear interruptions to Gulf exports or the possible closure of the Strait of Hormuz, they incorporate an additional premium into crude prices to compensate for perceived geopolitical risk—even if oil continues to flow uninterrupted.

This explains why oil prices react so quickly to political developments. Signs of de-escalation or progress in diplomatic negotiations can rapidly erode that risk premium, leading to sharp price declines. Conversely, renewed attacks on oil infrastructure or shipping routes can restore it almost overnight. Markets remain highly sensitive to developments in the Gulf, where prolonged supply disruptions could leave the global oil market in deficit through 2026 before potentially shifting into surplus in 2027 as Gulf exports normalize and production outside OPEC+ continues to expand.

Still, geopolitics is only part of the equation. Oil prices will also depend on OPEC+ production decisions, global inventory levels, US shale output, and demand growth in major consuming economies, particularly China and India. Should global economic growth weaken or Asian demand remain subdued, oil could face additional downward pressure even after the conflict ends. Conversely, OPEC+ retains the ability to stabilize prices through coordinated production adjustments if market conditions deteriorate.

Gold tells a more complex story. Traditionally regarded as the ultimate safe-haven asset, gold typically benefits from geopolitical instability. Yet the end of a war does not necessarily signal the end of a bull market in gold. Unlike oil, gold's trajectory is shaped not only by geopolitical risk but also by U.S. monetary policy, real interest rates, the dollar's performance, and central bank reserve management.

Because gold generates no income, it becomes more attractive when interest rates and real bond yields decline. If the end of the conflict contributes to lower oil prices, inflationary pressures may ease, giving the Federal Reserve greater room to adopt a less restrictive monetary stance. Under such circumstances, gold could lose some of its appeal as a haven while simultaneously gaining support from lower interest rates and a weaker US dollar.

Another important pillar supporting gold is sustained demand from central banks. Over recent years, monetary authorities around the world have steadily increased their gold holdings as part of a broader effort to diversify reserve assets and reduce reliance on the US dollar. Many analysts believe this structural trend is likely to continue even if geopolitical tensions gradually subside.

That said, gold is not without risks. Stronger-than-expected US economic data, rising Treasury yields, or renewed dollar strength could trigger a correction following the substantial gains recorded over recent years. Such corrections would not necessarily signal the end of the longer-term upward trend but rather a normal market adjustment.

Looking ahead, three short-term scenarios appear plausible. The first assumes successful negotiations and a lasting restoration of regional stability and maritime security. Under this scenario, oil prices would likely decline gradually as the geopolitical risk premium fades. Gold could initially weaken but later stabilize if expectations of lower interest rates continue to support investor demand.

The second scenario envisions a cessation of military operations without a durable political settlement. In that case, oil may surrender part of its wartime premium while remaining volatile, whereas gold would probably retain much of its appeal amid persistent uncertainty.

The third—and least optimistic—scenario involves a collapse of negotiations and renewed military escalation. Under such circumstances, both oil and gold could rise simultaneously, although for different reasons. Oil would be driven higher by supply concerns, while gold would benefit from increased demand for safe-haven assets. Recent market behavior suggests that investors remain exceptionally sensitive to developments surrounding negotiations and shipping conditions in the Strait of Hormuz, helping explain the continued volatility in both markets.

Overall, oil appears more vulnerable to price declines once a durable peace is established, as a significant portion of its current valuation reflects geopolitical risk that could dissipate relatively quickly with the normalization of supply. Gold, by contrast, is likely to prove more resilient because its drivers extend well beyond the conflict itself. US monetary policy, the dollar, global debt levels, central bank purchases, and confidence in the international financial system will remain decisive influences long after the fighting ends.

In the end, markets cannot remain hostage to fear indefinitely. Wars may push prices higher through uncertainty, but as tensions recede, markets inevitably return to economic fundamentals. For oil, supply, production, and inventories will continue to determine medium-term equilibrium. For gold, however, the decisive variables will remain interest rates, the US dollar, and investors' confidence in the global financial system.

Disclaimer: The views expressed in this article represent an economic assessment based on the information and market expectations available at the time of writing. They are intended solely for analytical purposes and should not be interpreted as investment advice or as a recommendation to buy or sell gold, oil, or any other financial asset.

The writer is a former Jordanian minister of state for economic affairs.