In our recent discussion with Lighthouse adviser Jessica Hargreaves, we unpacked what it means when oil prices surge 50% in a short period of time and why global conflict can quickly ripple through markets. While headlines about war and markets can feel alarming, the reality for investors is often more nuanced than the news cycle suggests.
Oil Prices Surge 50% - Why It Matters
One of the biggest market stories recently has been the rapid rise in oil prices. Crude oil has surged from under US$60 a barrel nine weeks ago to nearly US$93, representing an increase of roughly 50%.
This jump is largely linked to instability surrounding the US–Iran conflict. A key concern is the Strait of Hormuz, a critical global shipping route where roughly 20% of the world’s oil supply passes through.
If transporting oil through this region becomes unsafe, it can disrupt supply chains and drive prices higher. Even if oil is still being produced, the cost of moving it around the world may increase, which pushes up global oil prices.
For most people, the first place this will be noticed is at the petrol pump. Petrol prices are expected to rise, potentially pushing toward $3 per litre.
However, the impact of oil goes far beyond fuel. Oil is used across freight, transport, manufacturing and food production, meaning sustained increases can gradually feed through to higher costs across the economy.
What It Means for Markets
Despite the dramatic headlines, the response in financial markets has been relatively measured so far.
When the conflict escalated over a weekend, many investors expected markets to fall sharply when trading reopened. Instead, markets briefly dropped before finishing the day higher.
Different sectors reacted in different ways:
-
Energy and defence companies rose
-
Travel and airline companies fell, largely due to higher fuel costs and disruptions to routes
Looking at the broader picture, the S&P 500 was down around 3.2% over the previous month, which is relatively modest compared to the scale of the headlines surrounding the conflict.
Historical data also suggests that markets have often remained resilient during periods of geopolitical conflict. Examples discussed in the episode included:
While markets may react to geopolitical events in the short term, history shows that long-term market performance often tells a different story.
How Investors Might Approach Uncertain Markets
A common reaction during global crises is the temptation to time the market – selling investments or delaying decisions until uncertainty passes.
The challenge is that predicting market movements is extremely difficult. Investors would need to correctly time both when to exit and when to re-enter the market.
One approach discussed in the episode for people investing large sums is tranching. Instead of investing everything at once, an investor might spread their investment over time. For example, someone investing $1 million might invest $100,000 each month over ten months.
This doesn’t remove risk, but it can help smooth out market volatility and make the process more manageable from a psychological perspective.
Importantly, most investment strategies are built for the long term, often with horizons of 20 to 30 years. Short-term market events – even major geopolitical ones – are typically just one part of that longer journey.
Key Takeaways
-
Oil prices surged roughly 50% in nine weeks, rising from under US$60 to nearly US$93 per barrel.
-
Instability around the Strait of Hormuz, where about 20% of global oil passes through, is driving supply concerns.
-
Petrol prices may rise significantly, potentially approaching $3 per litre.
-
Higher oil prices can feed through to the wider economy via freight, manufacturing and food production costs.
-
Market reactions so far have been relatively modest despite dramatic headlines.
-
Historically, markets have often recovered and grown following geopolitical conflicts.
-
Trying to time markets based on news events is extremely difficult.
-
Strategies like tranching investments over time can help manage uncertainty.
Next steps:
If you’d like to watch more, check out this other episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
