The Smart Investor’s Guide to Surviving the Iran War Market Volatility

Your emotions can threaten your retirement savings.

This comes to mind in the wake of the fear investors feel as the U.S. and Israeli attack on Iran and the wider Middle East has send stock prices plunging.

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That fear is prompting investors to ask whether they should reallocate their investment portfolios. “How do you protect investment portfolios other than mix of precious metals, treasuries, dividend stocks, oil stocks and real estate domestically vs abroad?,” a retired friend emailed me this week.

To be sure, there is much to concern investors. Geopolitical tension with Iran influences oil supply expectations, energy price volatility – with the price of gasoline up 9% in the last week , defense and cybersecurity spending, insurance and shipping costs in the region, and overall global risk sentiment.

Yet the evidence suggests dumping all your stocks is not the optimal response to the fears people are feeling. That’s because in more than 25 wars and military conflicts over the last 70 years, the S&P 500 has on average bottomed out between 4.7% and 5% after roughly 19 days – and recovered fully within about 42 days, according to LPL Financial Research.

What’s more, in 70% of the time, the S&P 500 has been higher one year after the start of armed conflict and has delivered an average return exceeding 11% in the year following major geopolitical shocks, noted Hartford Funds.

The top performing investors during geopolitical turbulence have already built diversified, hedged portfolios with adequate liquidity — which strengthens their ability to resist the cognitive biases that induce ill-timed panic selling.

Will the Iran War Cause More Economic Pain Than Average?

The economic pain from the Iran war depends on how long it lasts. Rather than focusing on whether the strait of Hormuz is formally closed, analysts are framing scenarios based on the time to end the conflict affecting maritime transit and energy flows, noted Middle East Briefing.

The best case is a one week conflict which diplomacy deescalates while the worst case is a conflict lasting over four months, I wrote earlier this week. This best case would see the war ending in two weeks with crude topping at $90 per barrel and then falling back to about $75.

The worst case scenario is an Islamic Revolutionary Guard Corp missile and drone strike on Saudi Arabia’s Abqaiq processing facility and Ras Tanura terminal, which together handle about 7% of global daily oil supply, according to CNN.

This could prevent the U.S. Navy from guaranteeing safe passage anywhere in the Persian Gulf, the Gulf of Oman, or the North Arabian Sea. A prolonged closure of the Strait of Hormuz is, in the words of energy analyst Bob McNally, "a guaranteed global recession," according to the Council on Foreign Relations.

Oil could top $150/barrel, per Tradingkey, natural gas prices could more than double, wrote CNBC, and the Cape of Good Hope could become a permanent structural fixture of global shipping for the foreseeable future – raising shipping rates 50% to 75%, noted SpecialEurasia.

The relatively benign stock market and economic impact of global war highlighted above masks an important concern: if a military conflict interrupts energy supply and triggers inflationary spirals, the damage can be far worse.

For example, the 1973 Arab Oil Embargo sent the S&P 500 down 37% over twelve months because oil remained in short supply, causing stagflation, noted J.P. Morgan Private Bank.

Since 20% of the world’s oil supply flows through the Strait of Hormuz – which the Iran war is shutting down – odds are good that the impact of the Iran war on your portfolio will be worse than the average 4.7% to 5% bottoming out after 19 days.

That’s because the energy channel is how Middle East tensions impose the greatest risk to portfolios, according to Yahoo Finance.

Which Industries Will Be the Biggest Winners and Losers from the Iran War?

As we will explore below, the smart way to protect your portfolio during the Iran war volatility is to have a well-constructed portfolio. However, your current portfolio may be likely to rise or fall more dramatically if it is more heavily allocated to winners or losers from the current conflict.

Energy, defense, and aerospace stocks are benefiting in the short term.

The Energy Select Sector SPDR was the sole S&P 500 sector posting positive returns while broader markets declined during Middle East conflict. Occidental Petroleum, ExxonMobil, and Chevron have hit record highs during periods of elevated Strait of Hormuz risk, noted FinancialContent.

Defense stocks have boomed during periods of geopolitical conflict. For example, the SPDR S&P Aerospace & Defense ETF returned 56.5% over the past twelve months, while the Global X Defense Tech ETF has delivered a 59% annualized return since its 2023 inception, according to U.S. News & World Report.

Cybersecurity, shipping and logistics, and insurance companies are also affected by the Iran conflict but with less clear immediate benefits for investors.

Cybersecurity demand increases after military conflict in the Middle East, and such stocks have increased about 3% since the Iran war started. There was a 700% increase in cyberattacks targeting Israel following military strikes on Iran in 2025, according to CSIS research. Such attacks cause enterprises to accelerate cyber spending which they rarely cut back afterward, per Investing.com.

Middle East tensions drive big increases in logistics costs. Emergency conflict surcharges of $2,000 to $4,000 per container have been imposed by major carriers during Hormuz disruptions, according to Time. With freight rates likely to stay high, shares of major shipping companies have increased 10% since the Iran war started, according to the Wall Street Journal.

Insurance rates have increased even more dramatically during acute Hormuz tensions. War risk insurance premiums have risen by between 80% and 300% since early March 2026, with some rates jumping from about 0.125% to over 2% or 3% of vessel value, noted Global Banking and Insurance Review. Share prices of maritime insurance carriers have been mixed since the beginning of the conflict.

What Should Investors Do?

If your portfolio is not concentrated in any of these categories, to recall the words of the late President George H. W. Bush, investors should stay the course, rather than sell stocks in a panic.

Why? A study found $100,000 invested in the S&P 500 in 1988 and left untouched would have grown to $4.9 million by 2024. Missing just the 10 best trading days would have cut that to $2.3 million — a 52% reduction, according to Vanguard research.

But panic driving selling is a common reaction due to loss aversion — the tendency to feel losses roughly twice as intensely as equivalent gains, noted Abacademies. Moreover, herding behavior amplifies the tendency towards panic selling with just 5% of informed investors influencing the decisions of the remaining 95%, according to William & Mary research.

The best defense is a portfolio diversified by geography and industry. Geographic diversification is “the favored basic hedge” against geopolitical crises, since most events impact some nations far more than others, noted UBS Global Wealth.

Another good diversification is "asset class diversification and active risk management," according to Morgan Stanley, which adds portfolios should include “quality stocks in financials, healthcare, industrials, and energy.”

Other possibilities for investors to consider include up to 15% in gold. For example, a 60% equities, 20% bonds, and 20% gold portfolio has outperformed the traditional 60% equities, 40% bonds portfolio since 2020 with greater resilience in volatile environments, according to LSEG.

Finally, to resist the urge to panic, investors should set aside enough cash, bonds, and borrowing capacity to cover between three and five years of cash flow needs, noted UBS.

By Peter Cohan, Senior Contributor