Geopolitical conflicts have a significant impact on the global economy, not only in terms of direct losses but also through a continuous flow of economic speculation.
News regarding ceasefires, wars, or peace in major ongoing conflicts, such as those in Ukraine, the Middle East, or regions in Africa, can shake financial markets, leading to rapid movements in commodity prices, currencies, and stock indices.
Economic speculation arises from the uncertainty that conflicts generate in the markets. Any announcement of a ceasefire, a potential end to hostilities, or, conversely, an escalation of a war, can drastically alter investors’ expectations regarding market trends. Speculators aim to take advantage of these fluctuations, basing their strategies on predictions of events that will influence the course of global economies.
Commodity markets are among the most sensitive to conflicts. For example, increases or decreases in the production of oil, gas, wheat, and metals can cause price swings that are quickly exploited by those able to foresee the evolution of the conflict or diplomacy. Take the war in Ukraine as an example: when Russia’s invasion began in 2022, oil and natural gas prices surged, driven by fears that Western sanctions could reduce the supply of these vital resources. On the other hand, news of ceasefires or potential peace negotiations led to declines in the prices of these commodities, as investors anticipated a reduction in global inflationary pressures.
When news of ceasefires or peace plans emerges, the effect on markets can be positive, but not always in a linear way. If the news is perceived as credible and with the potential to resolve a crisis, it can lead to a decrease in volatility, boosting investor confidence. Stock indices, for example, might respond favorably, rising due to the perception that geopolitical risk is decreasing.
A good example of this occurred after peace agreements in some regions of the Middle East, such as ceasefire negotiations between Israel and Palestine or peace accords in Sudan. News of these developments caused both local and international stock markets to rise, with a consequent reduction in concerns over energy supply disruptions or the direct economic damage caused by war.
On the other hand, the intensification of a conflict can generate greater volatility. Investors tend to act cautiously when they perceive that war is about to escalate, seeking refuge in safe-haven assets such as gold and government bonds of stable countries, while the currencies of countries involved in the conflict may quickly depreciate.
A clear example of this is the reaction of financial markets to the escalation of the war in Ukraine. When Russian forces launched large-scale attacks in 2022, financial markets saw significant fluctuations, with the ruble experiencing heavy losses in the first days of the conflict, while the value of the dollar and gold increased as investors sought to protect themselves from global uncertainties.
Furthermore, prolonged conflicts fuel inflation, as the scarcity of natural resources, such as oil or metals, drives up prices. These increases affect not only the countries directly involved in the war but also global economies, as seen in the energy crisis triggered by the war in Ukraine. Speculations in this scenario focus on the possibility that the supply of strategic resources will be interrupted or reduced, leading to sharp price increases and potential distortions in global markets.
Economic speculation related to news of war, ceasefires, and peace not only reflects the immediate dynamics of conflicts but also future expectations regarding their development and economic consequences. While war fuels uncertainty and volatility, ceasefires and peace agreements offer opportunities for stability that markets can capitalize on. However, the unpredictable nature of global conflicts means that speculation remains a risky practice, where the balance between risk and reward is constantly evolving.
Foreign policy and geopolitical events will continue to dominate the economic landscape, while investors seek to anticipate developments and capitalize on fluctuations created by conflicts. Their ability to navigate between wars, ceasefires, and peace negotiations will be crucial in determining the future of global economies.