US markets showed the greatest psychological resilience. Trading on the S&P 500 followed a familiar pattern: although the index opened lower on Monday, it reversed the negative trend during the session. And although there was a sell-off on Tuesday, the index recovered again later in the day.

Instead of panic selling, the movements largely reflected profit-taking. The cash raised may be used for further investments, particularly in European and Asian stocks, which were more exposed to the conflict. On Wednesday, the US stock market rose again.

American resilience and the success trap

There are several reasons why US stocks remain relatively calm. The first is that the United States thinks the military campaign will be swift and decisive. The Trump administration's presentation of the entire conflict is in the typical spirit of enormous success. America likes to believe in success stories.

At the same time, however, this represents a trap, because as soon as it becomes apparent that things are not going according to plan and the whole operation is dragging on, we can expect a significant correction in the markets. Although here we can point to a certain schizophrenia in the American markets, as betting on a quick end to the conflict is in direct contradiction to the massive growth in the share prices of American arms manufacturers.

The second reason is the relatively low exposure of US markets to the energy sector.

Today’s dominant US stocks come mainly from the technology and healthcare sectors, which are not directly affected by oil or natural gas prices. In addition, the United States is a net exporter of oil and natural gas, meaning higher commodity prices may even work in its favour.

More precisely, they mainly benefit shareholders in the oil and energy industries. They may also benefit the Trump administration, as higher energy prices can improve the foreign trade balance. Trump will likely present this as a success of his economic policy.

There is a risk here as well. Petrol prices at US filling stations have begun to rise slowly but steadily. Because US fuel taxes are lower, changes in global oil prices are reflected more directly at the pump than in Europe.

Few people know exactly where the threshold lies that American consumers are willing to accept when paying for fuel. For many Americans, the rising cost of living has been a central concern since the COVID-19 pandemic.

The winning dollar and European enlightenment

There were no panic reactions on the American markets, partly because the price of gold did not rise. The often mentioned threshold of $6,000 per troy ounce, which might have been exceeded if more countries had become involved in the conflict in Iran, has, for the time being, remained out of reach. On the contrary, the price of gold has surprisingly fallen.

The main reason for this decline was the steady strengthening of the US dollar since the beginning of the conflict. For many investors, this was a clear reminder that the US currency continues to be a safe haven in times of crisis.

The de-dollarisation of the global economy is therefore unlikely to be on the agenda in the near future. If there is a clear winner from the war in Iran, it is undoubtedly the US dollar.

In contrast, Germany’s DAX index has lost more than 7 per cent since the start of the conflict, and France’s CAC 40 more than 6 per cent. Although the situation improved slightly towards the end of the week, it was uncomfortable for investors to realise that Europe is more a passive observer than an active player in this crisis.

Emmanuel Macron’s statement that the US and Israeli attack violated international law, but that Iran bears full responsibility, sounded more like diplomatic incantation than assertive realpolitik.

European governments were not informed of the military operation in advance, let alone consulted. The markets thus offered a reminder of an uncomfortable reality for Europe: if it does not play a meaningful role in security decisions, it will struggle to influence issues that are existential to it, such as energy security.

Volatility and vulnerability of Asian markets

By contrast, we have seen extreme volatility in Asia, as the region is most affected by the blockade of the Strait of Hormuz.

Although China is widely known to have built up strategic reserves over many years and can compensate for shortages by increasing purchases of Russian gas and oil, the situation is far more complicated for South Korea and Japan for geopolitical reasons.

This is particularly bad news for Japan, whose economy is already struggling with domestic inflation. The country’s central bank cannot influence global oil prices, but it can attempt to strengthen the yen to limit the impact of higher commodity prices. Yet a stronger yen would complicate the Japanese prime minister’s ambitious economic programme.

In South Korea, markets have seen similarly sharp swings. The Kospi index showed daily volatility that would not be out of place in a speculative memecoin.

The initial reaction to the war in Iran was a one-day drop of more than 19 per cent. The following day, however, the South Korean stock market rebounded sharply, rising by about a tenth.

Last year, South Korea’s stock market was among the best performers in the world. The main drivers were two technology companies that manufacture memory chips, components which are currently in short supply for the construction of large data centres.

These companies are Samsung Electronics and SK Hynix. The panic sell-off therefore suggested that some investors used the unexpected geopolitical shock to lock in substantial profits.

The Iranian conflict has not yet had a significant impact on either company. The market reaction has served as a reminder of an old truth: extremely high valuations always carry the risk of rapid and sharp shifts in market sentiment.

Developments on the South Korean stock market may therefore serve as a warning for other global markets. In an environment of high expectations, even a small geopolitical shock can turn euphoria into panic within a single day.