War and the Impact on Commodity Pricing

Gold just cracked US$5,000 an ounce. Two years ago it was sitting around US$2,060. That’s a roughly 140% move, and the biggest driver behind it has been the same thing that’s been moving commodity prices for centuries: fear.

When the world gets nervous, whether it is a new conflict, sanctions cutting off trade routes, or an old war escalating somewhere that matters, money flows into things that have held value for thousands of years. Gold is the obvious one. But the real chaos often plays out in the metals most people never think about, the ones buried inside batteries, phones and stainless steel.

Conflicts move commodity prices two ways. First, they spook investors into safe havens. Second, they physically disrupt the flow of raw materials around the world. If a major producer gets caught in the crossfire, or a government decides to weaponise its exports, traders scramble, supply chains seize up, and prices can gap higher overnight.

You can see it playing out right now. The US has two carrier strike groups near Iran, Trump has given Tehran 10 to 15 days to agree to a nuclear deal, and Brent crude just posted its biggest single-day jump since October. Oil and gold are both moving on the same force that has driven commodity prices through every conflict of the last 50 years: the fear that supply is about to get cut off.

What affects commodity pricing during war?

In normal times, commodity prices trade on the basics. Supply and demand, production costs, inventory levels, the US dollar, and how much China is buying this quarter. Spot prices (what buyers pay for immediate delivery) and futures contracts (where you lock in a price for delivery down the track) settle into ranges that traders can work with.

War throws all of that out the window.

The gap between how quickly supply vanishes and how slowly it gets replaced is where the real damage happens. Futures curves invert as traders panic-buy near-term supply. Insurance costs for shipping routes spike. And the usual supply responses, where another producer ramps up to fill the gap, take months or years to materialise, if they materialise at all.

You do not need a world war for this to bite. A policy decision in the DRC or a short squeeze on the London Metal Exchange can be enough to send a metal vertical.

Oil price and war in the Middle East

The playbook for oil and conflict has barely changed in 50 years, and markets still get caught off guard every single time.

Ray Dalio built Bridgewater into the world’s largest hedge fund partly by studying how the same patterns repeat across history (and we recommend his book Principles for Dealing with the Changing World Order). Oil shocks are one of the best examples of how history rhymes.

The 1973 Arab oil embargo set the template. After Arab OPEC members cut exports to the US and its allies during the Yom Kippur War, oil prices quadrupled. The embargo lasted five months but its effects lasted decades – triggering a US recession, reshaping Western energy policy, and proving that oil-producing nations could use supply as a weapon.

In 1990, Iraq invaded Kuwait and wiped 4.3 million barrels per day off the market overnight. Oil near-tripled from July to by October. The price came back down once coalition forces demonstrated early military success, but Saddam’s retreating troops set 600 Kuwaiti oil wells on fire, causing what remains the largest deliberate oil spill in history. Kuwait’s production took years to fully recover.

Russia’s invasion of Ukraine in February 2022 ran the same script again. Brent crude topped US$100 for the first time since 2014 within days of the invasion, then hit US$139 a barrel by early March as the market priced in the possibility that Russian oil, the world’s second-largest output, would be sanctioned off the global market. The US banned Russian oil imports that month. The Brent crude average for all of 2022 was US$100 a barrel.

The reason the Middle East keeps producing these shocks comes down to geography. The Strait of Hormuz, a narrow channel between Iran and Oman, handles around 20 million barrels of oil per day. That is roughly 20 per cent of global petroleum consumption flowing through a single chokepoint. About 84 per cent of it heads to Asian markets, mainly China, India, Japan and South Korea. There are very limited pipeline alternatives, and the IEA has warned that if the strait were blocked for an extended period, physical shortages would develop quickly.

That is exactly why the current Iran standoff has oil traders on edge. In early February, IRGC gunboats tried to seize a US-flagged tanker in the Strait of Hormuz, and a US F-35 shot down an Iranian drone approaching a US aircraft carrier. Iran has since partially closed the strait for naval exercises. Every one of those moves reminds the market just how thin the line is between geopolitical posturing and a genuine supply shock.

We saw a preview of that fragility starting in late 2023 when Houthi militants began attacking commercial ships in the Red Sea. Oil and product flows through the Bab el-Mandeb strait dropped by more than 50% as vessels rerouted around the Cape of Good Hope, adding weeks to delivery times and pushing up freight costs across global trade.

The through-line across 50 years of oil shocks is consistent. When conflict threatens a major producing region or a critical shipping route, prices spike fast and come down slowly. And the tighter global supply is when the conflict hits, the worse the price impact.

When conflict drives other commodity prices

Some of the wildest commodity moves in recent years have come from metals you would never see on the front page.

Nickel: The day the LME broke

Most people do not think about nickel much. It mostly sits inside stainless steel, EV batteries and a heap of industrial application. Then in March 2022, nickel became the most talked-about metal on the planet.

Russia supplies around 6 to 7% of the world’s nickel, but closer to 20% of the high-purity class 1 metal that battery makers need. When Russia invaded Ukraine in February 2022, traders started pricing in the possibility that Russian nickel would be sanctioned or simply too risky to buy. Prices climbed steadily through the first week of March.

Then it got wild.

On March 7, nickel closed at around US$48,000 per tonne, already double where it had been trading weeks earlier. The next morning, prices blew through US$100,000 per tonne. Not over days. In minutes. The chart turned into a vertical line.

Behind the scenes, a Chinese steel tycoon named Xiang Guangda, who controls the world’s largest nickel producer Tsingshan, had built an enormous short position betting nickel prices would fall. When the price went the other way, his brokers started hitting him with margin calls he could not meet. Other short sellers faced the same problem, and the buying frenzy to close those positions turned into one of the most violent short squeezes in commodity market history.

The London Metal Exchange, which has been around for 145 years, did something it had never done before. It shut down the nickel market entirely and cancelled over US$3 billion worth of trades that had already gone through. Nickel did not trade again for a week. When it reopened, prices had settled back to around US$32,000, but the LME’s reputation took a beating that it still has not fully recovered from.

The aftermath was messy. Tsingshan eventually negotiated a standstill agreement with its banks and arranged emergency credit lines to slowly unwind its positions. The LME introduced daily price movement limits to stop it happening again. But for commodity investors, the episode was a wake-up call about how quickly things can go sideways when geopolitics collides with concentrated market positions.

If you own mining stocks or EV-related plays, it pays to know which countries sit behind your portfolio’s supply chain. When one producer holds an outsized share of a critical metal, any disruption, whether it is sanctions, war or a short squeeze, can send prices somewhere nobody expected.

Cobalt: One government, one decision, total market reset

Cobalt is the metal that powers your smartphone and sits inside most EV batteries. About 73% of global cobalt production comes from the Democratic Republic of Congo, a country with a long history of political instability and a government that has learned to use that control of supply as leverage.

In February 2025, the DRC imposed a four-month export ban on cobalt after prices had fallen to nine-year lows of around US$10 per pound (roughly US$22,000 per tonne). The oversupply had been building for a while, driven largely by a massive production ramp-up from Chinese-backed operator CMOC at its Kisanfu mine.

The market responded immediately. Within weeks, international refined cobalt prices jumped from US$10 per pound to US$16. Cobalt hydroxide, the intermediate form that gets shipped to China for refining, saw prices spike even harder, with Fastmarkets reporting an 84 per cent increase at the midpoint by mid-March.

Both Glencore and CMOC declared force majeure, meaning they could not fulfil their contractual obligations because supply had been cut off at the source. Chinese refineries started drawing down stockpiles and scrambling for alternative feedstock from Indonesia.

The DRC extended the ban by another three months in June, and by the time they replaced it with strict export quotas in October, capping annual shipments at about 97,000 tonnes (roughly half the country’s output), cobalt metal prices had more than doubled from their January lows. By the start of 2026, cobalt entered the year at around US$56,400 per tonne.

One policy decision in Kinshasa reshaped the entire global cobalt market inside 12 months. Battery manufacturers and car companies that had taken cheap cobalt for granted suddenly found themselves competing for limited supply, rethinking their sourcing strategies and, in some cases, accelerating the shift towards cobalt-free battery chemistries like LFP.

Concerns about human rights in Congolese mining have been pushing some buyers to diversify their cobalt sourcing for years. The export ban accelerated that trend. Indonesian output, tied mainly to nickel processing, picked up some of the slack but came nowhere near replacing DRC volumes. The DRC government knows this, and that gives them pricing power for as long as alternatives remain limited.

Heading into 2026, the DRC’s quota system keeps a tight lid on exports through 2027. Analysts at Fastmarkets forecast a supply deficit of roughly 10,700 tonnes this year. If you are investing in battery metals or the EV supply chain, this is a live risk that has not fully played out.

Safe havens: where money goes when things get ugly

When conflict breaks out, the immediate instinct for most investors is to move capital somewhere that will hold its value while everything else gets repriced. We are watching that instinct play out right now with the Iran standoff, and it follows the same pattern it always does.

Gold is the lifeboat of the financial world, and its recent run speaks for itself. Since the start of 2024, gold has moved from about US$2,060 to above US$5,000 today. There is only so much gold coming out of the ground each year, so when demand surges from nervous investors and central banks at the same time, prices move fast. China’s PBoC bought gold for 15 consecutive months through to January 2026.

For ASX investors, gold exposure can come through bullion, ETFs backed by physical metal, or gold mining or explorer stocks. The mining stocks add a layer of operational risk but can offer leverage to the gold price on the way up.

The US dollar tends to strengthen during geopolitical blow-ups because it remains the world’s reserve currency. When uncertainty spikes, global capital flows into USD-denominated assets almost by default. That is worth remembering if you hold ASX miners with USD-denominated revenues, because a stronger greenback can actually boost their AUD earnings even if the underlying commodity price stays flat.

Government bonds have traditionally been the other safe haven, though that relationship has weakened. During periods of high inflation, which often accompany wartime commodity spikes, bonds can actually lose value. The old 60/40 portfolio split between equities and bonds did not work well in 2022 for exactly that reason.

Defence stocks are the more direct play. Global defence spending has been climbing steadily since Russia’s invasion of Ukraine, and companies tied to military production have outperformed broader indices. It is a sector that tends to attract capital when the geopolitical outlook darkens.

No single safe haven works in every scenario. Gold tends to do its best work during extended periods of uncertainty. The USD spikes hardest at the onset of a crisis. Defence stocks benefit from the policy response that follows. Knowing which one to lean on depends on the type of conflict and how long you expect it to last.

The bottom line

The pattern across every example in this piece is the same. Supply concentration plus geopolitical instability equals price volatility that most investors underestimate until it arrives on their doorstep.

If you hold miners, battery stocks or commodity-focused ETFs, take a look at where your exposure actually sits. The DRC controls three-quarters of global cobalt. Russia holds outsized influence over class 1 nickel. One-fifth of all the oil consumed on the planet flows through a single strait where Iranian gunboats tried to seize a US tanker three weeks ago.

Geopolitical risk is not something you can model neatly into a spreadsheet. But you can stay across which countries dominate which supply chains, which shipping routes are vulnerable, and which markets are tightest. When the next disruption hits, and the Iran situation suggests it could be any day now, the investors who know their supply chains will react faster than those who do not.

That is what we cover every week at Equities Club. Commodity moves, ASX small-cap opportunities, and the geopolitical shifts that affect both. If you want to stay across it, join the 20,000 investors already reading our weekly newsletter.