Geopolitics in real time: how Israel’s strike on Iran triggered a “butterfly effect” in global finance and the international security system

Today’s preventive strike by Israel on the territory of Iran started a whole financial chain that swept through the Asian, European and American markets in several waves. What may have initially appeared as a local military action became a global trigger for billion-dollar revaluations in stock quotes, currency pairs and commodity contracts within hours. The classic “butterfly effect” worked with mathematical precision: a short-term aggravation in the zone of chronic tension turned into a deep nervous wave in the investment centers of the world. The markets did not wait for explanations from the parties, nor the first losses, nor the development of the conflict — the very fact of the blow was enough to automatically trigger the restructuring of portfolios across all asset classes. In addition, this event served as an important strategic signal for nuclear and potentially nuclear players.

The collapse of world stock markets as a result of an Israeli attack on the territory of Iran

On the night of June 13, Israel launched a powerful pre-emptive strike on Iranian territory as part of Operation Eastern Lion, which was directed against Iran’s nuclear program. The targets of the attacks were key elements of Iran’s nuclear military infrastructure. Among them are the country’s leadership, facilities related to the development of the nuclear program, factories for the production of ballistic missiles, military warehouses and control centers. Strikes were made not only on the territory of Tehran, but also on a number of other strategic objects outside the capital.

In response, the Iranian side launched more than a hundred drones on Israeli territory, as a result of which the conflict between the countries abruptly shifted from the stage of threats to a direct exchange of force. At the same time, the tension is growing against the background of the fact that Tehran has currently accumulated stocks of enriched uranium, which is enough to produce about 15 nuclear charges.

After the Israeli attack on the territory of Iran, the world financial markets reacted in a matter of hours with large-scale financial turbulence. Events in the Middle East instantly became a new trigger for global stock market jitters, triggering an avalanche of sell-offs in risky assets and a sharp shift by investors to defensive financial instruments. The response was synchronous across all major time zones, from Tokyo to New York.

Asian stock exchanges opened trading with a sharp fall. Japan’s Nikkei lost 1.3%, Korea’s KOSPI fell 1.1% and Hong Kong’s Hang Seng fell 0.8%. These figures showed the level of caution that investors are showing in the region, which itself is used to constant crisis fluctuations, but this time the situation in the Middle East has forced to act more aggressively. Then the wave of decline spread to the European and American markets. The pan-European STOXX 50 fell 1.6%. U.S. futures also fell short, with the S&P 500 down 1.7% and the Nasdaq falling even deeper, down 1.8%. This demonstrates the classic scenario of stock market movements at the time of military escalation, when the markets do not wait for official assessments of the consequences, but react immediately to the very fact of the start of a military operation.

In addition, against the background of news from Israel, gold quotes changed rapidly. The price of the precious metal rose 1.5% to $3,434 an ounce. That came close to the all-time high of $3,500.05 set in April. The transfer of capital into gold is traditionally considered a direct indicator of nervousness in financial markets. Gold has reaffirmed its reputation as a reserve currency at a time when geopolitical risks threaten to upset the global financial balance.

The reason for this instant reaction was not only the fact of the strike itself, but the statements that appeared after it. Israel explained its actions as preventive within the framework of the fight against the Iranian nuclear program, stressing that in this way it is trying to disrupt the development of Tehran’s potential nuclear capabilities. At the same time, there were reports of serious losses among the military and political leadership from Iran. In particular, the Iranian mass media reported the death of the commander of the Islamic Revolutionary Guard Corps, Hossein Salami. From the Israeli side, there were claims that the chief of the General Staff of Iran and a number of key nuclear scientists could also become victims. In view of such losses, there were speculations on both sides about the high probability of a large-scale Iranian military response. Israel has put its forces on high alert, preparing for possible missile and drone attacks from Tehran.

Another phase of capital redistribution immediately started on the currency markets. The Swiss franc strengthened by 0.4% to 0.8072 per dollar. The Japanese yen added 0.3% to settle at 143.12. The US dollar traditionally acted as another safe haven: the dollar index rose 0.5% to settle at 98.131 points. The euro did not hold back and lost 0.4% to settle at $1.1538, giving up some of its previous gains to its highest level since October 2021. The British pound slipped 0.5% to 1.3554 after a short-term peak of $1.3613.

American government bonds played a special role in this scenario. It is to them that large volumes of capital of investors, who are looking for the most reliable assets in the event of a protracted crisis, began to actively migrate. The yield on 10-year US Treasury bonds fell to 4.31%, hitting a one-month low.

All this created a situation that can be called an instant chain reaction or “butterfly effect”, because one short military episode immediately turned into a global shock on the stock exchanges. The Middle East has once again confirmed its special status as a key geopolitical risk, which almost instantly translates into billion-dollar losses and capital movements in financial markets around the world.

Global finance under the impact of local crises: historical examples of the “butterfly effect”

Over the past decades, global markets have repeatedly demonstrated their hypersensitivity to local political or military conflicts, which set off chain financial reactions far beyond the scale of the event itself. History records well the moments when the decisions of one state, an attack or even a statement by a leader changed the structure of capital movement, caused fluctuations in currency markets, the price of raw materials, the fall or rise of shares.

In October 1973, one of the most famous financial turbulences of the 20th century began, which directly originated from the military conflict. The fourth Arab-Israeli war, which went down in history under the name “Doomsday War”, became not only another military confrontation in the Middle East, but also the starting point of the global oil crisis. Arab OPEC member countries responded to US support for Israel with an oil embargo, causing oil prices on world markets to more than quadruple. The countries of the West were hit simultaneously from two sides: on the one hand, a rapid increase in energy costs, on the other hand, a deep recession, inflation and a deficit in the balance of payments. The world economy experienced a massive energy shock for the first time, which fundamentally revised the economic model of the post-war period.

Another classic example of a global financial response to a local crisis was the events of August 1990, when Iraq invaded Kuwait. A few days after the start of Operation Desert Shield, oil once again became an indicator of political tension. Brent oil prices rose from $16-18 to more than $40 per barrel in a short period of time. Exchanges immediately priced in the risks of a large-scale military conflict in the Persian Gulf. Capital markets tumbled, with U.S. stocks losing more than 10% in the first few weeks after the invasion, and investors once again began pulling assets out in droves into gold, U.S. government bonds and currency safe havens, including the Swiss franc. The fall in the markets continued until the start of the active phase of Operation Desert Storm in January 1991, after which the situation gradually began to stabilize.

In August 1998, global markets received another blow, this time not of military origin, but of financial origin, but also local in origin. Russia declared default on government debt obligations. Formally, the problem concerned only Russian domestic debt, but its consequences instantly affected global bond markets. After the default, there was a mass flight of investors from all markets that were considered “exotic” or insufficiently protected. Markets in Latin America, Southeast Asia and even some Central European countries simultaneously experienced significant sell-offs, despite the lack of a direct connection to the events in Moscow. The Russian crisis launched the effect of chain restructuring of portfolios, which became a classic example of a financial domino in the world of underdeveloped economies.

In September 2001, global markets experienced an event that demonstrated the extent to which a physical act of terrorism can catalyze global economic consequences. The 9/11 attacks on the Twin Towers in New York, the Pentagon, and the attempted attack on the White House struck the very financial infrastructure of the United States. The New York Stock Exchange was closed for four full trading days, the longest interruption in trading since World War II. After the opening, quotes collapsed by more than 7% in just the first day of trading. US airlines lost up to 40% of their market capitalization in the first week. The insurance sector has been hit by huge payouts for destroyed property, and the banking sector has sharply tightened liquidity restrictions. In the weeks following the attacks, US and European stock indexes fell by an average of 15-18%. Gold and US government bonds have once again become the center of concentration of global capital. In addition to the immediate financial reaction, these events changed US regulatory policy, launched a new phase of change in international security, and affected capital markets for decades to come.

During the global financial crisis of 2008, one of the unexpected catalysts for a new round of turbulence was actually a local event — the bankruptcy of the investment bank Lehman Brothers. Although the problems of the US financial sector developed gradually during the year, it was the announcement of the default of one major player that completely changed the nature of the crisis. Institutional investors lost confidence in interbank settlements, liquidity in credit markets actually froze. In a few days, US stock indexes fell another 10-15%, and European and Asian stock markets began to decline rapidly. This episode turned the US financial problem into a global liquidity crisis, which further affected manufacturing, trade and banks around the world.

In June 2016, the referendum in Great Britain on leaving the EU provoked another example of an instant reassessment of risks by the markets. The very fact of the Brexit vote hit the pound sterling first, which depreciated by more than 10% in the first hours after the results were announced – the record daily drop for the British currency in recent decades. European stock markets lost up to 5% for the day. The Japanese yen rose sharply, surpassing the 100-per-dollar mark. At the same time, world agencies lowered forecasts for the economies of the EU and Great Britain, which further deepened fluctuations in financial flows.

In February 2022, another military conflict — Russia’s full-scale invasion of Ukraine — also turned into a multi-level financial shock. Although the theater of hostilities itself formally remained regional, the world markets immediately put into quotations the risks of a large-scale energy deficit in Europe, a lack of food resources, and disruption of global logistics chains. Brent crude oil prices soared to more than $130 per barrel in a few weeks, gas in Europe broke through $2,000 per thousand cubic meters, and wheat prices hit multi-year highs. At the same time, the euro began to weaken against the dollar, investors massively transferred assets into dollar instruments and American government bonds. The movement of capital has shown that even if the military conflict takes place far from the exchange centers, the global financial system responds to the very change in the risk profile of the world order.

During the existence of the USSR, the most striking historical example of the “butterfly effect” was the accident at the Chernobyl nuclear power plant on April 26, 1986. Formally, it was a man-made disaster, but its economic and financial consequences became part of the general destabilization of the late Soviet economy. After the accident, the USSR had to spend enormous resources on liquidation of the consequences: financing of evacuation, medical programs, resettlement of hundreds of thousands of people, creation of an exclusion zone, construction of a sarcophagus. This happened against the background of the already growing debt crisis of the USSR, the budget deficit and the gradual collapse of the centralized economic system. Chernobyl itself did not cause an immediate collapse of currencies or stock markets – they did not formally exist in the classical form in the USSR. However, it became one of the key factors in the destabilization of the Soviet economy, which ultimately collapsed over the next five years.

Another example from the Soviet era is the so-called “first external default” of the USSR in the early 1980s. Due to the collapse of oil prices in 1985–1986, foreign currency from exports fell sharply, foreign exchange reserves melted, and the Soviet Union began to draw large-scale Western currency loans to support imports of food and technology. These loans later became one of the levers of the West’s financial pressure on Moscow in the late 1980s. That is, the global oil crisis directly affected the currency stability of the Soviet system, although it was not officially called a financial collapse.

Already after the collapse of the USSR, the first major “butterfly effect” in Ukraine was Russia’s default in 1998. Ukraine, being closely tied to the Russian market, immediately felt the direct consequences: a sharp drop in the hryvnia exchange rate, which fell from 1.90 hryvnias to the dollar in the middle of the year to 5-6 hryvnias to the dollar at the end of 1998. The banking crisis began, freezing of deposits, mass flight of currency from Ukraine, rising prices. It was a classic financial chain effect of the external crisis for the still fragile post-Soviet financial system.

The second real Ukrainian example was 2008 — the global financial crisis after the bankruptcy of Lehman Brothers. Although the event was American, Ukraine felt it very quickly: the collapse of the hryvnia from the level of about 5 hryvnias to the dollar to more than 8 hryvnias, massive devaluation of deposits, problems in the banking sector, reduction of metal and chemical exports. The outflow of foreign investments and the drop in demand for raw materials on world markets hit the Ukrainian economy almost simultaneously with the main exchange centers.

Another example is the annexation of Crimea and the start of the war in Donbas in 2014. After the events of March-April 2014, Ukraine experienced one of the toughest currency crises in its history. During the year, the hryvnia devalued more than three times — from 8 hryvnias to the dollar to 26–28 hryvnias. Currency regulation was introduced, banks were closed, and gold and foreign reserves fell. Western markets watched the situation as a geopolitical risk, but Ukraine felt the classic local effect of the financial crisis against the background of political instability.

In 2011, the civil war began in Syria. Despite the fact that the conflict itself had a local character from the very beginning, with the involvement of only certain external players, it quickly turned into a multi-level geopolitical crisis. The most direct and immediate channel of influence was the oil market: the Middle East once again found itself under the sign of instability. Although Syria itself is not a large producer of oil, the markets began to include in the quotations the risks of the expansion of the conflict to the neighboring oil states, primarily Iraq, Iran, and Saudi Arabia. As a result, in 2011-2012, the price of Brent oil was consistently above $110 per barrel, and in some periods rose above $120. Internal speculative waves were also superimposed on this background, when large exchange players artificially accelerated the price at the expense of short-term positions. This immediately affected the level of inflation in the USA, Europe and energy importing countries in Asia.

After 2015, the conflict in Yemen, formally even more local than the Syrian war, also caused a number of financial waves. Houthi rebels have repeatedly attacked Saudi Arabia’s oil infrastructure, including drone attacks on oil refining giant Saudi Aramco in 2019. Just one such attack in September 2019 disabled up to 5% of global oil supplies in a matter of hours. The markets’ reaction was immediate, with Brent crude jumping nearly 20% in one trading session to $71 a barrel, the biggest one-day gain in 30 years at the time. This affected not only energy futures, but also transportation stocks, logistics companies, airlines, oil currencies, insurance companies and global indices.

In 2020, the COVID-19 pandemic created a completely new configuration of the “butterfly effect” in the financial plane. Initially, it was an epidemic in certain provinces of China, where the first cases of the virus were recorded in December 2019. Within weeks, it became clear that the risks would extend far beyond China. In mid-March 2020, when the first mass lockdowns began in Europe and the US, the markets reacted with one of the largest financial panics of the 21st century. The Dow Jones lost more than 10 thousand points in a few weeks, the S&P 500 index recorded a drop of more than 35% from its peak values. Mass liquidation of risky assets covered all categories — shares, bonds, real estate funds, corporate loans. At the same time, a rapid flight of capital into US government bonds and the Swiss franc began. The VIX index, which reflects the level of stock market turbulence, rose to its highest level since 2008. Moreover, the financial collapse took place in conditions when neither the scale of the epidemic nor its final economic consequences were yet understood. Economic losses were just beginning to pile up, but markets were ahead of events at high speed — in a classic butterfly scenario.

In 2022-2023, global markets experienced another type of reaction, related not so much to hot wars as to escalation around the Taiwan Strait. After US House Speaker Nancy Pelosi’s visit to Taiwan in August 2022, Chinese military exercises close to Taiwan’s shores triggered another series of portfolio strategy reshuffles. One of the most sensitive segments was the microchip industry, with shares of Taiwanese semiconductor giant TSMC and its related suppliers showing volatility for several weeks, fluctuating between 10-15% of pre-war levels. Global companies began to further reassess the risks of supplying semiconductor components, due to which part of the capital began to move to alternative production locations in South Korea, the United States and even Europe. In currency markets, this triggered temporary demand for the dollar as a safe-haven asset, with the yen and franc once again acting as safe havens.

After the start of Russia’s full-scale war against Ukraine in 2022, the financial response was once again global in nature. Ukraine found itself under a direct military strike, but global markets also included in the quotations the risks of grain shortages, rising energy costs, and changes in currency flows in Europe. Ukraine experienced a massive capital outflow, an emergency drop in GDP by more than 30% in a year, large-scale support from international creditors and a deep devaluation of the hryvnia to 36-38 hryvnias per dollar.

Even in 2024-2025, a period of high market expectations and complex global inflationary dynamics, the conflict in the Red Sea (Houthi attacks on merchant ships) again showed how a geographically small event can instantly generate logistical disruptions, rising insurance premiums, fluctuating container shipping costs and local currency fluctuations. These risks have directly affected even those countries that do not in any way participate in the military operations themselves.

All these examples have a common denominator and demonstrate the same financial mechanism, which actually works as a model of the “butterfly effect”. A local event, regardless of its geographical scale, triggers automatic reactions of system and global players. In today’s world, where financial markets are linked by high-frequency transactions and global instant liquidity, this connection works whether it is a political decision, a military attack, a default, or even the results of a vote. It is this feature that turns any point of the global order into a potential launch pad for new financial turbulence.

In the 21st century, geopolitical and military conflicts remain among the most sensitive triggers for financial markets. The situation has become especially characteristic, when even events in areas that were considered peripheral 30-40 years ago instantly trigger financial fluctuations in the centers of world capital.

Furthermore, all of the examples listed, spanning half a century of global financial history, demonstrate a persistent pattern: modern markets have effectively lost the time barrier between a political event and a financial reaction. If back in the 20th century there were days or weeks between local crises and the stock exchange response, today the first wave of market restructuring begins almost simultaneously with the arrival of news. This mechanism no longer depends on the scale of the conflict, its geographical location or the formal participation of major economies. The reaction is triggered not so much after the assessment of real losses, but after the very appearance of the fact of potential risk expansion.

The global financial system of the last thirty years is built on hyper-fast information flows, computerized trading decision-making algorithms and high-frequency trading. Investors do not work with monitoring the development of events, but with automatic changes in probability estimates. That is why a local military operation in Syria, a default in Russia, an election in Britain, a lockdown in China or a shelling in Iran act as triggers for an instant global price adjustment.

As a result, global stock exchanges have become a hypersensitive balancing system of expectations. The economic effect of the real consequences has not even begun to form yet, but the financial assessment of risk is already embedded in stock, bond, exchange rate and commodity exchange quotes. This is what makes the world economy in the 21st century vulnerable to short-term, even minor political or military shifts. The global model has become a function of the speed of information, not the scale of the event. Therefore, world capital has long been living in the mode of the “butterfly effect”, when every local air movement is instantly transferred to a new financial front.

What other consequences can the world and Ukraine expect from Israel’s attack on Iran

In addition to the financial turbulence already unleashed by Israel’s strikes on Iran’s nuclear program, this operation has the potential for broader and longer-term consequences. First of all, it is another twist in the competition for strategic security in the Middle East, where the probability of a direct military confrontation between two states outside the so-called proxy wars is now increasing. Iran has actually been given a reason to escalate not only through drone attacks, but also through its allies in Syria, Lebanon, Yemen, and through a network of groups loyal to it in the Persian Gulf region. This increases the risks for oil transit, in particular through the Strait of Hormuz, and creates new threats to energy stability in the world.

The second consequence is diplomatic. Israel’s strike undermines the fragile balance that the US and European mediators have been trying to maintain over negotiations over Iran’s nuclear program. In fact, now any return to compromise negotiations is losing realism, and the Iranian leadership is getting an additional internal mobilization argument to intensify anti-Western and anti-Israel rhetoric. This means that diplomatic platforms will be paralyzed for the near future.

Another extremely important implication is that Israel’s strike on Iran should be seen as a strategic signal to other nuclear and potentially nuclear players. Israel has demonstrated that it is ready to use force even before Iran legally acquires the status of a nuclear power. Such a model of preventive deterrence can now become a reference for other regions of the world, in particular in the Southeast Asian zone, where tensions are building around North Korea’s nuclear ambitions, and around Taiwan, which potentially risks becoming the object of similar scenarios under other political circumstances. Also, the example of the Israeli operation emphasizes that nuclear potential is not an absolute guarantee of inviolability if preventive threats exceed the threshold of tolerance.

In addition, the principle of a pre-emptive strike by Israel forms a new practical precedent for the global policy of deterrence. For Ukraine, this approach is particularly sensitive in the context of war, since Russia has systematically exploited the issue of its nuclear arsenal as an element of blackmail since the first days of a full-scale invasion.

A separate contour of risks for Ukraine is that the escalation in the Middle East increases the competition for international attention, resources, financial assistance and political commitments of the West. In the event of a protracted confrontation between Israel and Iran, part of the military and political resources of the United States and its allies will inevitably be redistributed towards the Middle East. This complicates diplomatic lobbying of Ukrainian interests against the background of the emergence of new hotspots. Also, any expansion of the conflict threatens further fluctuations in the energy markets, and therefore — direct economic costs for Ukraine due to higher prices of oil products, logistics, and energy contracts.

At the same time, growing demand for the dollar and capital flight into US bonds strengthens the position of the American currency, creating additional devaluation pressure on the hryvnia due to the exchange rate peg to the dollar against the background of maintaining high defense costs and foreign aid. At the same time, the change in global moods on the markets always complicates the work with debt refinancing, attracting investments and stabilizing bank liquidity, even for countries that formally stand aside from a specific geopolitical crisis. So, the Ukrainian economy, like the global financial system as a whole, has long been living in a world where the “butterfly effect” has ceased to be a metaphor and has become a technology of direct transmission of local events into global financial movements.

As we can see, the global financial system has actually turned into a chain of deeply integrated reactions, where any local shift in the political, energy, logistics or security plane is capable of changing multibillion-dollar capital flows in a matter of hours. In this context, Ukraine receives indirect consequences: a shift in international attention, competition for political resources, and a new contour of global instability, which forms the context for future decisions in European and transatlantic politics. This is the modern form of the “butterfly effect”: a local strike triggers not one, but a whole series of chain reactions that affect even those countries that are not formally a party to the conflict.