That reaction can feel alarming. But it’s important to understand what markets are actually doing. They are not reacting to what has happened — they are reacting to what might happen. And history shows that “might” is often more dramatic than reality.
Encouragingly, the initial stock market reaction has been more measured than many feared. While energy prices have moved higher, global equity markets have held up better than expected in the first session of trading post the weekend. That suggests investors are, for now, pricing in a contained scenario rather than a full-blown regional escalation.
For long-term KiwiSaver investors, that distinction is critical.
For global markets, the key transmission channel is not the military headline itself. It is energy supply.
Iran accounts for roughly 3% of global oil production, meaningful, but not dominant. The greater concern is geography. Iran sits on the Strait of Hormuz, the narrow chokepoint through which about 30% of the world’s oil and gas exports pass each day.
That includes crude oil and liquefied natural gas (LNG), which has become increasingly important since the Ukraine war disrupted Russian supply. Reports of attacks on Qatar’s (one of the world’s largest LNG exporters) LNG facilities, have added to concerns about supply security in the Gulf. Any perceived threat to infrastructure or shipping routes in that region quickly feeds into global energy markets.
For New Zealanders, this is not just a financial markets story. If crude prices remain elevated, motorists could feel the impact at the pump in coming weeks, particularly if the NZ dollar continues to move lower. Higher petrol and diesel costs add to household pressure.
However, there is an important difference between a spike in risk premium and a sustained supply shock.
During last year’s regional flare-up in the Middle East, Brent crude oil briefly rose to around US$80 a barrel before retreating once it became clear that infrastructure remained intact and flows continued. Markets had priced in a severe outcome. When that outcome failed to materialise, the premium unwound.
If this conflict proves short and contained, measured in weeks rather than many months, volatility in oil and gas could fade quickly. If energy flows through the Strait of Hormuz were materially disrupted for a prolonged period, oil and gas prices could spike significantly higher. That would likely push inflation up again, complicate central bank policy, squeeze consumers and potentially slow global growth.
That is the genuine downside scenario. Until there is evidence of sustained disruption, what we are largely seeing is uncertainty being repriced across the broader energy complex.
It is also worth noting that the world’s oil-supplying nations (represented by Opec+) have little interest in seeing a sustained surge in energy prices that damages the global economy and ultimately destroys demand. The group has already agreed to resume production increases next month, adding more than 200,000 barrels per day. At the same time, global LNG supply is more diversified than it was a decade ago. Markets are pricing energy risk, but that does not yet mean an energy crisis.
Markets price worst-case first
Political shocks often feel like turning points. Markets tend to treat them differently.
When Donald Trump was first elected, many predicted prolonged instability. Despite trade wars, tariff escalations and political turbulence, US equities rallied strongly in the years that followed (the S&P500 rose by nearly 50% from his inauguration through to the onset of Covid).
More recent tariff shocks followed a familiar pattern. After “Liberation Day” tariffs were announced last April, markets initially sold off sharply as investors priced in slower growth and higher inflation. Once it became clear that the most extreme outcomes were unlikely, equities recovered and had a very strong year (the S&P500 rose over 15% in 2025).
The same dynamic played out during the Ukraine war. When Russia invaded in February 2022, the S&P 500 fell about 18% through to October that year as commodity prices surged and recession fears intensified. It felt ominous at the time. Today, the index sits nearly double its October 2022 lows and roughly 60% above its pre-war level.
For investors who stayed invested, losses proved temporary.
Markets tend to discount fear quickly. They also adjust quickly when reality proves less severe than initially feared.
The ‘expensive distraction’ trap
Renowned investor Warren Buffett has often described macroeconomic forecasts and political drama as “expensive distractions”. Obsessing over geopolitical headlines frequently leads investors to make emotional, short-term decisions (particularly selling during panics) rather than focusing on long-term earning power.
Buffett has said that wars, recessions and crises are recurring features of history. Yet historically, they have not justified selling high-quality businesses at distressed prices. Instead of reacting to macro noise, he has focused on the three-to-15-year earning power of companies.
That mindset is especially relevant for KiwiSaver. It is not a short-term trade. It is a decades-long investment programme designed to build retirement wealth over time.
If we have a market downturn it will feel painful. That is undeniable. But they are also common.
Over the past 150 years, there have been around 19 bear markets triggered by wars, oil embargoes, credit crises, inflation shocks and speculative bubbles, including the Great Depression,[SG2] the dot-com bust and the Global Financial Crisis.
Each episode felt unprecedented. Each was followed by recovery.
Over the long term, equities have proven resilient. Markets have powered through previous crises and gone on to new highs.
What this means for your KiwiSaver
Markets may be bumpy in the days and weeks ahead. You may see a decline in your KiwiSaver balance.
That can feel unsettling.
But context matters. For KiwiSaver members in growth-oriented funds, volatility is part of the long-term return journey. For those in more conservative funds, equity exposure is typically lower, which typically cushions swings. In both cases, the key question is whether your time horizon or risk tolerance has changed - not whether markets are volatile in the coming weeks.
The same principle applies to investments held outside KiwiSaver.
Selling shares or switching funds during geopolitical stress may feel proactive, but timing the market is notoriously difficult. Investors must get two decisions right: when to sell and when to re-enter. History shows that missing even a handful of strong rebound days can materially reduce long-term returns.
Short-term volatility can be a stern test of emotions. Blaring headlines and falling prices create a powerful urge to “do something”. Yet history consistently shows that investors who stay the course during periods of stress are rewarded for their patience. Markets often start to recover not when the news-flow improves, but when expectations have already become too pessimistic.
Time in the market has consistently mattered more than timing the market.
Unless this conflict escalates into sustained disruption of global energy supply, long-term drivers - earnings, innovation, productivity and monetary policy - will matter far more than short-term geopolitical events.
Short-term volatility often reflects worst-case scenarios being priced into markets. The critical question is whether those scenarios materialise.
For KiwiSaver investors (and for anyone investing in shares) history offers a clear lesson: reacting to fear has destroyed more long-term wealth than wars have. Keeping a cool head is not complacency. It is discipline - and discipline is what turns volatility into opportunity rather than regret.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.
