The New York Times this week asked if the S&P 500 is now dictating US foreign policy. Judging by Tehran’s rhetoric, financial markets are also shaping Iran’s.
Donald Trump has long shown a sensitivity to market movements and his rhetoric quickly softened when oil prices surged above $100 (€87.2), hinting the war would be wrapped up sooner rather than later.
Tehran understands this pressure point all too well, warning of the possibility of $200 oil, while foreign minister Abbas Araghchi has blamed Washington and Israel for “surging gas prices, costlier mortgages, and pummeled 401(k)s” (Americans’ stock-market retirement accounts).
In truth, Americans won’t be panicking about their retirement accounts just yet. Despite dire headlines and wild oil price oscillations, stock markets have been pretty calm. The S&P 500 has dipped about 4 per cent from its all-time highs, and is down just 1 per cent in 2026.
That response reflects a buy-the-dip lesson absorbed by traders over the years. Marko Papic of BCA Research has long argued that it’s rarely a good idea for investors to be too spooked by geopolitical shocks, for two reasons. Firstly, markets may briefly price worst case scenarios that don’t materialise, trading what could happen rather than what’s likely to happen. Secondly, policymakers often respond to crises with stimulus or policy support. The result is a simple trading rule: fade geopolitical panic.
The irony is this idea may now be too widely accepted. Papic himself is less “sanguine” than usual, warning that markets may have become almost too efficient at ignoring geopolitical risk. The Iranian regime, he argues, is existentially threatened and would surely like western leaders to believe that hitting it carries real, lasting costs.
In other words, there is a danger of what he calls a “rotten Taco” [Trump always chickens out] scenario. Trump may well declare victory and step back, but Iran might be tempted to prolong the pain in energy markets to ensure the lesson sticks.
As it happens, Papic remains positive this will not be a prolonged war, as both sides face material constraints and risks. Even if the fighting is brief, however, it’s clear that today’s markets are not just reacting to foreign policy, but shaping it.