Fires reignited: How Middle East conflict is reshaping the risk premium of gold and crude oil

Author: 137Labs

The sudden escalation of the Middle East situation has once again made energy supply security a core variable in the global market. Risks in the Strait of Hormuz, rising shipping and insurance costs, and expectations of potential supply disruptions have quickly driven up crude oil risk premiums; at the same time, safe-haven sentiment and inflation expectations have risen, boosting gold prices. This article systematically analyzes how war impacts the pricing logic of oil and gold through three channels: supply shocks, inflation transmission, and risk appetite contraction. Combining historical conflict experiences with the current macro environment, it also examines the performance differences of risk assets like Bitcoin during high uncertainty periods and discusses key future market variables and asset allocation directions.

1. Macroeconomic backdrop for rising oil and gold prices: risk premium re-pricing

In early 2026, the synchronized rise in international oil and gold prices was not an isolated event. From supply-demand structure, inflation expectations, to the accumulation of geopolitical risk premiums, the upward trend has solid fundamental support.

Regarding crude oil, the global supply system remains fragile. OPEC+ continues production cuts, U.S. shale oil growth is slowing marginally, and global inventories are relatively low. On the demand side, recovery in Asian economies combined with seasonal stockpiling keeps the oil market tight. Under this structure, any potential supply interruption risks are quickly amplified by the market.

For gold, central banks’ continued gold purchases, ETF fund inflows, and reassessment of medium- to long-term inflation central tendencies have collectively pushed up the gold price baseline. The global uncertainty index remains high, reinforcing gold’s safe-haven appeal.

Thus, before the outbreak of geopolitical conflicts, the structural conditions for rising oil and gold prices were already in place.

2. Escalation of Middle East conflict: supply shocks and “maritime oil valve” risks

After Israel launched military strikes against Iran targets, the Middle East situation rapidly heated up. The core of the conflict is not only military but also geographical—the global energy transportation chokepoint.

The Strait of Hormuz accounts for about one-fifth of global crude oil shipping. If shipping is obstructed or insurance costs soar, even without actual supply disruptions, risk premiums will quickly be priced into futures. Markets preemptively price scenarios like attacks on tankers, damage to refining facilities, or port closures, causing oil prices to jump.

Meanwhile, attacks on energy infrastructure and disruptions in shipping further reinforce narratives of “supply vulnerability.” Prices of natural gas, refined products, and related derivatives fluctuate in tandem. Rising oil prices also push inflation expectations higher, causing fluctuations in U.S. Treasury yields and the dollar index, and putting pressure on global risk assets.

The military scale of the conflict itself remains uncertain, but market sensitivity to supply chain uncertainties is significantly higher than assessments of the conflict’s direct military impact.

3. Asset transmission mechanisms: from energy shocks to risk appetite contraction

War impacts precious metals and oil mainly through three pathways:

1. Supply shock pathway

Crude oil is the fundamental energy source for the real economy. Rising transportation costs, inventory decline expectations, and higher insurance premiums are quickly reflected in futures prices. Increased energy costs further transmit to industrial metals, agricultural products, and global shipping indices.

2. Inflation expectation pathway

Rising oil prices imply potential upward pressure on future CPI. Markets begin to reassess central bank policy paths. If inflation expectations strengthen, the outlook for lower real interest rates supports gold prices.

3. Risk appetite pathway

Geopolitical conflicts often lead to increased stock market volatility, prompting capital flows into highly liquid and safe assets. Gold benefits significantly, and the dollar may also strengthen temporarily due to safe-haven demand. High-valuation risk assets face valuation compression.

4. Immediate performance of gold and crude oil

Following escalation, crude oil prices surged rapidly, with intraday gains expanding significantly. Market focus centered on transportation security and energy infrastructure integrity. Risk hedging behaviors appeared in trading, with volatility indicators rising in tandem.

Gold prices continued their upward trend. Institutional investors increased safe-haven exposure, and demand for physical gold and ETFs rose. Silver, among precious metals, also strengthened but with higher elasticity and more volatility than gold.

Market pricing exhibits typical “war premium” features:

· Energy: supply risk premium

· Gold: safe-haven and real interest rate expectations

· Stocks: risk discount

· Bonds: policy expectation rebalancing

5. Historical comparison: how war alters commodity and crypto volatility

Historical experience shows that each major Middle East or geopolitical conflict causes sharp, phase-based fluctuations in energy and precious metals.

· Gulf War: oil prices spiked short-term, then receded as the situation clarified.

· Initial phase of Iraq War: gold rose, risk assets declined.

· 2019 Saudi oil facility attack: oil prices surged sharply in a single day.

· Russia-Ukraine conflict: both energy and gold prices jumped, fueling global inflation.

Common points include: in early conflict stages, markets tend to overprice worst-case scenarios; as information becomes clearer, prices tend to stabilize.

6. Bitcoin and crypto assets: safe haven or high-beta risk assets?

In this conflict, Bitcoin experienced notable volatility. Unlike gold’s straightforward safe-haven role, Bitcoin’s response is more complex.

Research indicates that during rising geopolitical risk, Bitcoin may initially move in tandem with risk assets—declining when risk appetite drops. However, in regions with capital controls or currency depreciation pressures, Bitcoin can also serve as a capital transfer tool, leading to structural demand increases.

Statistically, Bitcoin shows phase-dependent correlations with energy prices and geopolitical risk indices, but these relationships are not stable or linear. Its price is more influenced by global liquidity conditions and the dollar trend.

Therefore, in wartime, Bitcoin aligns more with “high-volatility risk assets” rather than traditional safe havens.

7. Key variables influencing current markets

The main factors to watch are:

1. Whether the conflict spills over: limited strikes may see risk premiums gradually decline; involving the Strait of Hormuz or multiple countries could significantly escalate supply shocks.

2. Changes in shipping and insurance costs: the extent of actual logistics disruptions determines the energy price baseline.

3. Inflation and policy outlook: sustained high energy prices may delay central bank rate cuts.

In high-uncertainty environments, asset pricing reverts to “safety first.” Gold benefits from rising risk premiums and shifts in real interest rate expectations; crude oil depends on actual supply damage; Bitcoin seeks a new balance between risk appetite and liquidity.

8. Conclusion: cyclical and structural war premiums

Precious metals and oil are never just commodities—they are amplifiers of global risk sentiment. War brings not only supply-demand shocks but also challenges to the stability of the global financial system.

History shows that initial price volatility often contains emotional premiums; subsequent trends depend on the degree of fundamental recovery and policy responses.

Currently, markets are reassessing three core questions:

· Will energy supplies face actual disruptions?

· Will inflation re-accelerate?

· Is the global risk appetite entering a contraction cycle?

These factors will determine the future price paths of gold, oil, and Bitcoin over the coming months.

War not only shifts geopolitical landscapes but also reshapes the risk boundaries of asset prices.

(This article reflects personal views only and does not constitute investment advice.)