When war meets the stock market

Kim Sung-jae The author is a business administration professor at Furman University and author of "The Story of Tariffs" (2025). On Nov. 4, 1979, at the height of the Iranian Revolution, student protesters stormed the U.S. Embassy in Tehran. Fifty-two Americans were taken hostage. Ten days later, Jimmy Carter ordered the freezing of roughly $12 billion in Iranian assets. Washington attempted negotiations to secure the hostages' release, but Iran's revolutionary government refused to yield. In April 1980, the United States severed diplomatic relations and imposed further sanctions, including a ban on Iranian oil imports. With hostages on one side and frozen assets on the other, the standoff dragged on. Mediation efforts by Algeria failed to persuade Ruhollah Khomeini, who remained committed to revolutionary legitimacy. The deadlock broke only with the outbreak of another war. On Sept. 22, 1980, Iraqi forces led by Saddam Hussein invaded Iran. Seeking regional dominance, Iraq targeted a weakened Iran grappling with internal turmoil and strained U.S. ties. In need of war funding, Tehran returned to negotiations. The hostages were released in January 1981, after 444 days in captivity. As geopolitical tensions escalated, global oil prices surged from about $12 per barrel to $40, triggering the second oil shock. Despite the resulting energy crisis, U.S. equity markets remained resilient. By the end of 1980, the S&P 500 had risen 26 percent from the previous year. Energy companies, buoyed by rising oil prices, became dominant market drivers, with the sector accounting for as much as 28 percent of the index. A similar concentration is visible today. Five hyperscale firms leading investment in AI infrastructure account for roughly 30 percent of major stock indexes. Market concentration is even more pronounced than in 1980. At that time, seven of the top 10 companies by market capitalization were energy firms. Today, eight of the top 10 are AI-related technology companies. The rally of 1980, however, proved short-lived. As oil-driven inflation climbed to 14 percent, the Federal Reserve raised interest rates to 21 percent. The economy fell into recession and corporate earnings weakened. By the first half of 1982, stock indexes had dropped 21 percent. Recent gains in U.S. markets have been supported by strong corporate earnings. Yet rising energy costs and broader inflationary pressures could eventually weigh on a narrow group of leading firms. If their performance falters, the broader market may decline sharply. History suggests that war can both fuel and end a market rally. In 1980, conflict helped drive gains, but its economic aftereffects ultimately reversed them. Today's rally began before large-scale conflict. Whether its trajectory will differ remains uncertain. This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.