Daily headlines should remind us that events in the Middle East influence in global markets.
A key Warren Buffett investment principle has long been that when investing abroad, the country should not really be foreign to you. Those wise words certainly apply to anyone wanting to invest in the Middle East or even in domestic assets impacted by events in the Middle East. Repeated record-breaking fuel prices as well as the rising probability that the Federal Reserve will have to raise interest rates are daily reminders of the influence of the Middle East on global capital markets.
Yet, anyone who wants to understand why a strait a few dozen miles wide can move oil prices, sovereign bond yields, and bank balance sheets around the world cannot start with today’s headlines. One must start with history. A recent analysis from Silvercrest Asset Management Group is essential reading for market participants and financial regulators seeking to understand not just the Middle East but the vast swaths of geography connected to it.
Rehan Chaudhri, Managing Director, Portfolio Manager
Understanding how a nation and its leaders may behave requires seeing the world as they see it and analyzing the motivations that shape their decisions. History may have limited influence on our worldview; however, it can be central to the identity of other nations, particularly when material needs are vulnerable or exposure to violence is high. Rehan Chaudhri, Managing Director, Portfolio Manager
The Middle East is not a region that suddenly became unstable in the last few years, or even the last few decades. It is a corridor that has been fought over for two and a half thousand years, and the fault lines drawn by empires long dead are the same fault lines producing conflict today. For investors, bankers, regulators, and policymakers, that history is not academic trivia — it is a risk model. Understanding it is the difference between reacting to headlines and anticipating what comes next.
WTI has risen about 41%, while Brent has risen about 37% since the Iran War began. The Corridor That Connects Everything
The lands between the Mediterranean and Central Asia have long served as the connective tissue of world commerce, linking Egypt, Mesopotamia, the Indus Valley, and China. Whoever controlled this corridor-controlled trade, and the wealth it generated shaped the rise and fall of empires — from the transcontinental Achaemenid Persians through their Arab and Islamic successors, who built a free-trade zone stretching from Spain to the Indus on a common currency, legal system, and language. That same era, however, produced the Sunni-Shia schism: a political dispute over succession, not theology, that hardened into a geographic line running through Iraq, the Gulf coastline, and the Levant — almost exactly where it sits today.
Story Continues
The Mongol invasions of the thirteenth century shattered this order violently, sacking Baghdad and permanently displacing the center of gravity of the Islamic world. What followed was a five-hundred-year equilibrium between the Sunni Ottoman and Shia Safavid empires, whose 1639 border approximates today’s Iran-Iraq and Iran-Turkey lines. European colonialism then added the final layer: the Sykes-Picot agreement, the Balfour Declaration, and borders drawn by British and French cartographers between 1916 and 1948 with little regard for the religious and linguistic maps beneath them. Iraq’s Sunni-minority monarchy over a Shia majority, Lebanon’s frozen sectarian constitution, the incompatible promises made over Palestine, and the partition of Kashmir all trace back to this era of “divide and rule” — arrangements that eventually produced war.
Why This Matters for Money, Not Just History
This is the part that matters to anyone managing capital or assessing sovereign risk. Silvercrest Asset Management lays out the current flashpoint in exactly these terms: Iran, emerging from renewed conflict with more regional leverage than at any point since its imperial era, negotiating with a less centralized command structure than before; Turkey and Saudi-aligned states reforming alliances; and proliferation risk spreading outward to Pakistan, India, and China through overlapping nuclear, water, and territorial disputes in Kashmir. None of this is separable from the deeper history — it is that history, replaying itself with modern weapons.
The financial transmission mechanism runs straight through the Strait of Hormuz. Roughly 17 to 21 million barrels per day of oil, refined products, and LNG move through that chokepoint, and existing pipeline bypasses could absorb only a fraction of that volume if it closed. A full disruption could produce a supply shock roughly double the size of the 1979 Iranian Revolution or the 1990 invasion of Kuwait — at a moment when the US Strategic Petroleum Reserve sits near its lowest level since 1983. A shock of that magnitude would not stay contained to energy markets. It would show up as inflation, forcing central banks into a stagflationary dilemma, raising government borrowing costs at a moment of already-elevated sovereign debt loads, and straining oil-importing countries with thin foreign exchange reserves — India, Pakistan, Turkey, Egypt, Japan, and South Korea among them.
Hormuz Trade Flows By Commodity
Source: Silvercrest Asset Management, EIA, IEA, and Vortexa/Kpler. Pre-disruption baselines, first half of 2025.
Banks would feel the supply shock through credit deterioration in energy-importing markets, duration losses on long-dated government bonds if rates rise sharply, and margin stress in commodity derivatives, echoing dynamics seen in 2022. This is precisely why “war is often driven by competition for water and energy,” as the report’s own framing puts it, and why economic instability so often precedes political extremism and conflict.
The Venezuela Question — and Why It Does Not Change the Core Risk
It is tempting to look at the Trump administration’s 2026 deal securing US control over more than 65 billion barrels of Venezuelan oil reserves and conclude that the Hormuz risk has been substantially defused. It has not. According to the Oxford Institute for Energy Studies and the U.S. Energy Information Administration, Venezuela’s proven reserves are enormous, but its actual output — battered by years of underinvestment and sanctions — sits near 800,000 barrels a day, a fraction of what transits Hormuz daily. Rebuilding that infrastructure to a scale that meaningfully offsets a Middle East disruption will take years, not months. A closure of the Strait of Hormuz today would still be exceptionally painful — for oil markets, for sovereign borrowing costs, for banks holding rate-sensitive assets, and for the global economy as a whole.
The lesson, ultimately, is the same one the region has been teaching for two and a half thousand years: control of the corridor is power, and disruption of the corridor is crisis. Legislators, financial regulators, and investors who ignore that history do so at their own risk and to the detriment of ordinary citizens.
Congressional Testimonies By This Author
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This article was originally published on Forbes.com