What does the clash in Iran mean for your money?

BEAR IN MIND I AM NOT A FINANCIAL ADVISOR

For the past three decades, investors have lived through an extraordinary illusion: the belief that globalisation makes the world safer. It doesn’t. It just made conflict more expensive.

I always remember when the Iraq war began in the 1990s and my colleagues in the government defence team cheered, because it would mean a lot more orders for tech. That’s the cost of war.

But then the problem is that when nations become stressed economically, politically or socially, expensive things suddenly become acceptable.

History teaches this lesson over and over again.

The First World War happened at the peak of European financial integration. The 2008 financial crisis emerged during the most interconnected banking era in history. COVID exposed how fragile global supply chains really are. Today, as tensions escalate around Iran, markets are remembering something they had conveniently forgotten: geopolitics always matters.

When people ask where to invest during a war, they are usually asking the wrong question. They assume war creates a completely new economy. It doesn’t. War simply exposes what the economy already depended upon all along and, right now, the world still depends upon oil, energy infrastructure, shipping routes, semiconductors, data networks and military protection.

This is why markets react instantly whenever Iran appears in a headline. Iran is not just another country. It sits beside the Strait of Hormuz, one of the most strategically important shipping lanes on Earth. Roughly a fifth of the world’s oil moves through that corridor. The moment traders fear disruption, oil prices jump, inflation expectations rise and central bankers start sweating.

That matters because central banks had only just convinced themselves inflation was under control.

Now imagine what happens if energy prices surge again. Suddenly interest rate cuts become harder. Mortgage costs remain high. Supply chains become unstable. Airlines suffer. Logistics costs rise. Food prices increase. Governments borrow more for defence spending. Bond markets wobble. The entire system starts repricing risk.

This is why geopolitical conflict is really an inflation story disguised as a military story and inflation changes investment behaviour completely.

For fifteen years investors lived in a world of cheap money. When money is free, people buy dreams. They buy growth stocks with no profits, speculative technology plays, crypto tokens named after dogs and business models that promise jam tomorrow. Low interest rates create fantasy valuations because the future is worth more than the present.

War reverses that psychology very quickly.

In uncertain times, investors stop buying fantasy and start buying resilience.

Suddenly cash flow matters again. Energy matters again. Commodities matter again. Infrastructure matters again. Defence matters again. Governments matter again.

The irony is that many of the industries dismissed as “old economy” become strategically critical the moment the world becomes unstable.

Take energy.

For years politicians and investors talked as if oil was yesterday’s story. ESG funds avoided hydrocarbons. Young investors treated oil companies as dinosaurs. Yet the moment missiles fly across the Middle East, everyone remembers that civilisation still runs on fossil fuels. The planes still need fuel. The ships still need fuel. The military needs fuel.

It means that the companies producing energy become incredibly important. The same applies to defence firms. When a war starts, there is money to be made. I am sure that Donald Trump knows this.

For years defence spending was treated almost apologetically in Europe. Then Russia invaded Ukraine and suddenly every government rediscovered the importance of military capability. Now, with Iran and Ukraine in the eyes of the tiger, defence and cybersecurity have become even more critical.

This is also why, whenever the world feels dangerous, gold rises.

Gold is psychologically fascinating because it produces nothing. It pays no dividend. It generates no yield. Yet for thousands of years humans have trusted it during periods of uncertainty. Why? Because gold is not really an investment. It is distrust made physical.

When investors stop trusting governments, currencies or stability, they buy gold.

What is different today, however, is that we are entering an era where conflict is no longer purely physical. Wars are becoming digital, economic and algorithmic. Cyber-attacks can shut down pipelines. AI can manipulate information at scale. Drones can replace soldiers. Financial sanctions can cripple economies faster than bombs.

This means the new “war economy” is a mixture of dimensions from physical to technological, and from economic and political to social and digital. Cybersecurity firms matter. AI infrastructure matters. Data centres matter. Semiconductor supply chains matter. Cloud providers matter. The future battlefield is as much digital as physical.

But there is another lesson investors should remember which is that markets overreact. Always. It’s called the madness of crowds (there’s an old book about that).

The media narrative during geopolitical crises is almost always apocalyptic because fear generates attention. Every conflict is framed as the beginning of global collapse. Yet most of the time the financial system adapts surprisingly quickly. Humans continue trading, consuming, borrowing and investing because economies do not simply stop functioning during wars.

This does not mean investors should ignore risk. It means they should avoid emotional decisions because, ultimately, the real investment lesson of war is simple: fragile systems break first … and the same is true of portfolios.