Energy Markets in Conflict Zones: What Traders Should Know

Among the various financial markets, the energy market is often one of the most impacted by geopolitical events and armed conflicts. Its volatility and global significance make it particularly attractive to traders and investors. However, understanding the factors that drive price fluctuations is essential for navigating this complex landscape during times of turmoil. 

In this article, we’ll examine what influences energy market prices and what traders should know when dealing with energy markets in conflict zones. 

Let’s dive in.

TL;DR

• Energy markets encompass the transaction (trading) of energy commodities like oil, gas, solar, and electricity.

• They are divided into regulated, deregulated, wholesale, and retail sectors.

• Conflict zones (e.g., Gaza Strip, Ukraine, Iran) can disrupt energy production, transport, and pricing.

• Wars can spike energy prices due to sanctions, supply chain disruptions, or control of key transport routes like the Strait of Hormuz.

• Energy price shifts during conflicts also affect market sentiment, inflation, and economic stability.

• Energy companies may gain or suffer depending on their exposure and strategic responses.

• Traders should: stay informed, analyse trends, diversify, and stay flexible with trading strategies.

Energy Markets’ Overview

First, to understand how energy markets operate and what can affect their prices during conflicts, it is essential to get a more in-depth grasp of what energy markets are. 

What Are Energy Markets?

Energy markets refer to the arenas that allow the trading (buying and selling) of energy commodities such as electricity, natural gas, gasoline, solar energy, and oil. 

Types of Energy Markets

Energy markets can be segmented into regulated and deregulated segments, which can be divided into wholesale and retail markets. 

Regulated vs. Deregulated Markets

• In a regulated energy market, a single utility company controls the generation and distribution of energy. 

• In a deregulated market, multiple bodies can participate in generating, retail sales, and transmitting energy. 

Wholesale vs. Retail Markets

• Wholesale energy markets involve purchasing and selling energy among generators, utilities, and traders, occurring before the energy is distributed to the end consumer.

• Retail energy markets refer to the direct exchange of energy to consumers.

Types of Energy Sources

Energy markets cover multiple types of sources, namely the following:

• Solar 

• Hydropower 

• Geothermal 

• Biomass

• Win

• Ocean energy

Energy Markets in Conflict Zones: What Traders Should Know

Energy markets can be highly volatile during conflicts. As such, it is key to know how to navigate this price volatility. 

What Are Conflict Zones?

It is helpful to cover the basics of what makes a zone a conflict zone to understand how energy markets are affected in these zones. 

A conflict zone is a geographical area that experiences unfavourable conditions, such as ongoing military rule, violence, civil unrest, disruption of infrastructure and services, human rights violations, or severe political instability. 

Conflict zones include countries like Afghanistan, Myanmar, and the Democratic Republic of Congo. They can also include specific areas, such as the borders between Israel and Lebanon and the Gaza Strip. 

Energy Security & Supply Chain Risks

Energy security and supply chain risks are interconnected. When energy supply chains are disrupted by geopolitical events, natural disasters, or cyberattacks, energy security can be significantly impacted, leading to shortages, price volatility, and economic instability. Conversely, energy security concerns, such as diversifying energy sources or reducing reliance on specific regions, can shape the structure and resilience of energy supply chains.

Critical Energy Chokepoints

• Strait of Hormuz: Connects the Persian Gulf to the Gulf of Oman and the Arabian Sea and is the world's most important oil source, facilitating the transit of a substantial volume of oil.

• Strait of Malacca: Links the Pacific and Indian oceans and is the narrowest passage of Middle Eastern oil and natural gas suppliers.

• Suez Canal: Connecting the Red Sea and the Mediterranean Sea, this route offers a more direct passage for oil tankers navigating between Europe and Asia. 

• Bab el-Mandeb: Connects the Red Sea and the Gulf of Aden. It is situated between the Arabian Peninsula and the Horn of Africa.

• Bosporus and Dardanelles: These Turkish straits connect the Mediterranean with the Black Sea and are key players in the transportation of oil from the Caspian Sea region.

• Panama Canal: It links the Atlantic and Pacific Oceans, creating shorter oil shipping routes.

Energy Market Volatility During Armed Conflicts

Price Volatility

Conflicts, especially between producing countries, may lead to tariffs or bans on energy trade between countries, thereby causing energy prices to soar. 

Russia's invasion of Ukraine in February 2022, a major oil producer, serves as a prominent illustration. This incident triggered Western sanctions on Russia and a subsequent surge in oil prices. More recently, in 2025, Middle East escalations, particularly between Israel and Iran, further propelled oil prices to unprecedented levels. Iran, a nation with substantial oil reserves, also controls the Strait of Hormuz, the sole maritime route from the Persian Gulf to the open sea, which is crucial for global energy trade. (Source: Nature.com)

Shifts in Market Sentiment 

Due to the geopolitical risk of wars, market participants may be uncertain or apprehensive about certain energy commodities, which can affect their long-term and short-term energy trading plans. 

Broader Economic Impact

Conflicts can impact the economy as a whole since rises in energy commodity prices can lead to higher inflation. In addition, wars can lead to market crashes, economic turmoil, and recessions. 

Impact on Energy Companies 

While some oil companies, such as Chevron, BP, Shell, and ExxonMobil, have seen increased profits during wars, others face challenges due to fluctuating prices and geopolitical risks.

Energy Crisis Timeline (Through History)

1917 – WWI: The U.S. boosts oil production to aid Britain and France, underscoring oil’s strategic military value.

1953 – Iran Coup: A U.S.- and UK-backed coup ousts Iran’s PM Mossadegh after he nationalises oil, triggering a brief embargo and global supply fears.

1956—Suez Crisis: Egypt nationalised the Suez Canal, disrupting oil shipments to Europe and causing supply and price shocks.

1967 – Six-Day War: Arab states briefly embargo oil exports to the U.S. and UK over support for Israel, hinting at oil’s future use as a political tool.

1973 – First Oil Crisis: OPEC’s embargo on pro-Israel nations during the Yom Kippur War causes oil prices to quadruple and widespread economic chaos.

1979—Iranian Revolution: Strikes and upheaval in Iran slash oil output, double prices, and spark global fuel shortages.

1980–1988 – Iran-Iraq War: Attacks on oil facilities cut global supply, fueling price instability and energy insecurity.

1990–1991 – Gulf War: Iraq’s invasion of Kuwait leads to war and sanctions, slashing output and spiking oil prices.

2003 – Iraq War: U.S. invasion disrupts Iraqi oil, but OPEC steps in to stabilise markets.

2006 & 2009 – Russia-Ukraine Gas Crises: Russia halts gas to Ukraine, exposing Europe’s reliance on Russian energy.

2014 – Crimea Annexation: Russia’s move heightens European fears, spurring efforts to diversify energy sources.

2022 – Ukraine Invasion: Russia cuts gas to Europe, triggering a global energy crisis, price spikes, and a rush toward alternative energy. (Source: Council on Foreign Relations)

Trading Strategies for Energy Markets in Crisis

Basic Strategies to Keep in Mind

To trade during political conflicts, such as wars, traders and investors may want to:

• Conduct thorough research on energy commodities and what affects their prices in general. 

• Track political updates and news releases to see how these affect the energy market.

• Diversify your trading portfolio across various markets to spread risk and minimise losses.

• Conduct chart analysis, such as technical or fundamental analysis, to understand price swings better.

• Develop a trading plan, but be prepared to change it if volatility or drastic political shifts increase. : 

Advanced Trading Strategies for Conflict Scenarios

Pre-Conflict Positioning

• Monitor geopolitical risk indicators like the Geopolitical Risk (GPR) Index, BlackRock Geopolitical Risk Indicators (BGRI), and PRS Group’s Political Risk Index (PRI) to get a better indication of the possible geopolitical developments. 

• Build strategic reserves exposure. Governments and organisations maintain strategic reserves of vital resources like energy or food to ensure a steady supply during emergencies. These reserves buffer against price fluctuations, scarcity, or instability, requiring careful storage, procurement, security, and regulation planning. They also enhance a nation's international power.

• Consider defensive energy stocks. These are companies from the utilities sector (such as gas and electricity providers) that are known to be generally stable in terms of their earnings and dividends. Examples of defensive energy stocks include, but are not limited to, Duke Energy, Consolidated Edison, Chevron, and ExxonMobil.

Trading Amidst Conflict

• Apply volatility trading strategies, such as knowing breakout points and shorter-term strategies, to help mitigate risk. 

• Spread trading opportunities across markets by diversifying your portfolio. 

• Implement risk-off tactics by prioritising risk aversion, leading to decisions that involve divesting from certain "risky" assets.

Conclusion 

The energy market is intricately tied to global events, especially geopolitical conflicts and wars. These disruptions can lead to severe price volatility, changes in supply and demand, and broader economic consequences. For traders and investors, understanding how conflict zones affect energy markets is crucial for navigating these turbulent conditions. Whether it's through monitoring geopolitical developments, conducting in-depth market analysis, or diversifying trading strategies, staying informed and agile is key to success. Energy markets are complex, and during times of conflict, they demand even more vigilance, insight, and adaptability from participants.

*Past performance does not reflect future results.