The Interplay Between Geopolitical Instability, Armed Conflict, and Commodity Market Volatility.

Figure 1

The correlation between advances in commodity prices, particularly gold, and the incidence of warfare is widely acknowledged within analytical circles. Examination of continuous commodity price indices, such as the one presented in Figure 1, since 1750 AD, reveals a significant historical relationship.

The index’s initial data point, near the commencement of the American Revolutionary War, marks a crucial early observation. This conflict precipitated the collapse of the Continental Dollar, giving rise to the idiom “not worth a Continental.” Critically, commodities achieved an unprecedented peak during this crisis, a level that remained unsurpassed for approximately two centuries.

Historical War Cycles and Price Peaks

Fluctuations in this commodity index exhibit a high correlation with geopolitical instability and large-scale conflict. Following a trough around 1792, the subsequent price escalation coincided precisely with the Napoleonic Wars. This period culminated at the Battle of Waterloo, fundamentally restructuring the global power hierarchy and establishing the United Kingdom as the dominant hegemon. The UK hegemony lasted for approximately 150 years, as is typical, technically ending in July 1949.

This peak in both conflict intensity and commodity values preceded a prolonged era of relative tranquility until the 1840s. A significant commodity price surge then commenced in 1843, mirroring the escalating geopolitical tensions that led to the Mexican-American War. In a pattern consistently observed, the index peaked in 1865, synchronously with the culmination of the US Civil War. The subsequent decline in commodity prices directly reflected the ensuing period of lower international tensions and a more stable geopolitical environment.

Historical hegemonies (the US hegemony technically started in 1949).

Modern Commodity Cycles and Conflict Dynamics

The historical pattern of commodity price appreciation preceding or coinciding with major conflicts continued into the mid-20th century. The unexpected outbreak of World War II was notably reflected in a sharp appreciation of the commodity index.

A period of relative stability preceded the turbulence of the late 1960s and 1970s. The significant upswing in commodity prices from 1967 to 1980 encompassed major geopolitical events, including the Yom Kippur War, the oil embargo of 1973, the collapse of the international monetary system, and subsequent global instability with a general feeling of insecurity. This era was succeeded by a period of disinflation (1982-2000) and the formation of multiple asset bubbles.

The subsequent stock market collapse in the early 2000s, followed by a trough that coincided with a major commodity cycle trough, brought the D word (deflation) back into circulation. The ensuing price ascent reflected new geopolitical realities, notably the Afghanistan War, the Iraq War, and the Arab Spring.

From the period following the 2011 troop withdrawal from Iraq up to the COVID-19 pandemic lows, the global environment was comparatively stable. The short times of instability were mirrored in the CRB index by a minor, corrective rally, many of which occurred during the secular decline.

Post-2020 Cycle and Future Projections

The year 2020 marked the turn of a major economic cycle, initiating the significant commodity price increases observed during the prior administration. This sharp rise reflected the Russia-Ukraine war and the sustained conflict between Israel and Palestine.

As the peak of the post-2020 price rise is not yet confirmed, the existing trend suggests an expectation of continued price increases, which aligns with a projection for a more troubled geopolitical environment and an increase in warfare.

Long-Term Cyclical Analogues

Based on long-term cyclical analysis, particularly the second Kuznets swing analogue within the Kondratieff wave, the peak of this current cycle is theoretically projected for 2032, assuming behavior consistent with a historically similar economic environment. Any premature realization of this cyclical peak would indicate a significant decline in geopolitical risks and military warfare before our expected time horizon.

Ahmed Farghaly

Founder & CEO of Cyclic Vibrations Consultancy