Devina Mehra: How hard do wars hit stock markets? What the historical record suggests

These are sombre times for the world. The big conflict in West Asia is giving everyone the jitters. For readers of a business paper, the main questions would be related to its impact on markets.

Before coming to that, here’s a bit of a background with the caveat that I am not a geopolitics expert. Nevertheless, what I have done is look at history, facts and data.As I had pointed out in January in an interview, Iran is not a small country. It is more than half the area of India.

And if you strike Iran, there will be adverse consequences. It is not a country you can overpower very easily. It has an arsenal.

It has military forces. And probably more of a stomach to take casualties than the US alliance does. Moreover, Iran’s geography—with mountains and salt deserts—is such that ground warfare is nearly impossible.

I, for one, never understood what the end game of the US-Israeli strikes was. This is not the place to go into the details of why regime change is almost impossible with current tactics. On the other hand, Iran has been strategic in its chess game by striking economically.

The cost of neutralizing an inexpensive drone is orders of magnitude higher. But it has also been working to increase the risk perception of the region and and make the economic cost of the war prohibitive. It did not need to close the Strait of Hormuz, just make ship passage uninsurable.

Plus, Iran has managed to shake the ‘safe haven’ image of US allies in the region. Possibly, its game is to get the Gulf countries to pressure the US to stop the conflict. Those appear to be Tehran’s objectives, and to an extent, I would say that they have succeeded.Coming to financial markets, we did this study just before the Russia-Ukraine war started in