12.8 Case studies

Case 1. The 1990–91 Gulf War: the archetype#

Timeline

• 2 Aug 1990: Iraq invades Kuwait.
• July 1990: Brent spot traded between $14.98 (9 Jul) and $19.23 (31 Jul)¹.
• 27 Sep 1990: Brent peaks at $41.45². WTI peaks at $41.07 on 11 Oct 1990³. Monthly averages and some histories cite different peaks, for example "$46 mid-October"; use the EIA daily series.
• 16 Jul – 11 Oct 1990: the S&P 500 falls from 368.95 to 295.46, −19.9%⁴.
• 17 Jan 1991: the air war begins. WTI falls from $32.25 to $21.48, −33.4%, and Brent from $30.28 to $21.10, −30.3%⁵. The Bank of England called it the "largest-ever one day decline" [V via search snippet: BoE Quarterly Bulletin 1991 Q1]. The S&P 500 rises 3.7% that day [S].
• India. Forex reserves fell to about $1.2 bn in January 1991 and roughly halved by June, barely three weeks of essential imports. In May 1991, 47 tonnes of gold were flown to the Bank of England and 20 tonnes to UBS to raise funds⁶. The oil-price spike and the loss of Gulf remittances were proximate triggers of the balance-of-payments crisis. The deeper causes were fiscal and external imbalances.

Mechanism

• The supply loss (Iraqi and Kuwaiti exports) was real but was offset within months by Saudi spare capacity. So $\phi$ net was small, and much of the price spike was a risk premium on escalation into Saudi Arabia.
• On 17 Jan the decisive early air campaign moved scenario probabilities sharply toward "short war, no Saudi disruption". By (12.16) the escalation tail collapsed, and with it the premium.
• Equities did the mirror image.

Case 2. 24 February 2022: Russia invades Ukraine#

Timeline and numbers

• Brent futures traded above $100 for the first time since 2014. The intraday high was about $105.75–105.79 and the settlement $99.08⁷. EIA Brent spot was $101.29 [V].
• Brent peak. EIA spot peaked at $133.18 on 8 Mar 2022 [V]. Futures peaked intraday near $137–139 on 7 Mar: $139.13 is the commonly cited figure, and Yahoo's continuous contract shows $137.00 [S].
• Nifty −4.78% to 16,247.95, its worst day since May 2020⁸. Sensex −2,702.15 points [S].
• India VIX +30.3% to 31.98, with an intraday high of 33.97 [S].
• Gold spiked intraday (futures high $1,976.5) but closed only +0.8% at $1,926.3⁹. Other reports give +1.7–2.7% intraday moves to about $1,960, consistent with a round trip.
• Wheat (CBOT) closed limit-up at 926¢ and reached 1,425¢ on 7 Mar [S]. Russia and Ukraine were major wheat exporters through the Black Sea.

Mechanism

1. Supply-shock assets (wheat, Brent, European gas) priced actual export risk. Wheat had the clearest $\phi$.
2. Risk assets priced the risk premium. The Nifty's day-0 AR is far outside normal noise (Worked example 12.1).
3. Gold's muted close is the M11 lesson in miniature. The haven bid met rising real-rate expectations: the Fed began hiking three weeks later, on 16 Mar 2022.
4. India-specific: the oil import bill and the rupee. India then raised its imports of discounted Russian crude, the sanctions channel of 12.7.3.

Case 3. Red Sea / Houthi attacks, 2023–24#

Timeline

• 19 Nov 2023: Houthis seize the car carrier Galaxy Leader¹⁰.
• 18 Dec 2023: the US announces Operation Prosperity Guardian, a naval coalition [S].
• 12 Jan 2024: first US–UK strikes on Houthi targets (local time) [S].
• January–February 2024: Suez Canal trade volume is down about 50% y/y and transits around the Cape of Good Hope are up about 74%¹¹.
• Oil flows through Bab-el-Mandeb fell from 8.7 mb/d (2023) to 4.0 mb/d (Jan–Aug 2024)¹².

Mechanism Rerouting moved cargo onto longer routes rather than removing supply. In (12.21) the net $\phi$ was small for crude, while transport capacity was effectively cut. Freight and insurance repriced, and delivered-cost inflation and longer delivery times hit importers and exporters on Europe–Asia routes, Indian trade among them. Benchmark crude's reaction was small relative to the headline risk. Verify this in the lab with Brent around the dates above.

Case 4. April 2025: the US tariff shock#

Timeline (all [S]: Yahoo price history unless noted):

• 2 Apr 2025: "Liberation Day" tariff announcement after the US close.
• 3–4 Apr: the S&P 500 falls 4.84% to 5,396.52, then 5.97% to 5,074.08, a two-day fall of 10.5%. Over $6 trillion of market value was reported lost (Wikipedia citing the WSJ).
• 7 Apr (Monday). India's day 0 was 3 Apr, the first session after the announcement, but the largest Indian move came on the following Monday, after the two-day US collapse and China's retaliation. This is an example of why a single-day window can miss a geopolitical or policy event:
  • Nifty −3.24% to 22,161.60, with an intraday low of 21,743.65 (−5.07%). Sensex −2,226.79 points.
  • India VIX +65.6%, from 13.76 to 22.79.
• 8–9 Apr: Brent futures settle at a low of $62.82 on 8 Apr, with an intraday low of $58.39 on 9 Apr. The EIA spot low was $64.86 on 8 Apr [V].
• 9 Apr: a 90-day pause on most tariffs. The S&P 500 rises 9.52% to 5,456.90, its biggest gain since 2008.
• 22 Apr: COMEX gold futures make an intraday high of $3,509.9 (close $3,419). A spot record near $3,500 is widely reported but was not confirmed this session.

Mechanism

• This was a policy uncertainty shock (EPU rather than GPR).
• Crude fell because the dominant channel was demand (expected global growth), the opposite sign to a supply shock.
• Gold rose on uncertainty and a weaker dollar.
• The 9 Apr reversal is the scenario tree at work: the pause removed the worst branch.

Case 5. India–Pakistan, May 2025#

Timeline

• 22 Apr 2025: terrorist attack at Pahalgam.
• 7 May: Operation Sindoor strikes, 01:05–01:30 IST.
• 10 May: ceasefire, effective 17:00 IST¹³.
• Nifty closes¹⁴:
  • 7 May: 24,414.40 (+0.14%)
  • 8 May: 24,273.80 (−0.58%)
  • 9 May: 24,008.00 (−1.10%)
  • 12 May: 24,924.70 (+3.82%), the best day in four years¹⁵. Sensex +3.74%. Pakistan's KSE-100 +9.4%¹⁶.
• Oil: no move attributable to the conflict. EIA Brent spot was $62.37 on 6 May, $60.31 on 7 May (−3.3%, the opposite sign to a supply risk premium) and $65.28 on 12 May¹⁷; moves of that size were common in a market then driven by trade news. Gold's reaction was not checked against a primary series.

Mechanism

• The conflict involved no oil chokepoint, no sanctions and no large trade channel. So $\phi=0$ and the market priced only a modest risk premium, which was released on the ceasefire.
• Confound: the US–China tariff truce was announced over the same weekend. The 12 May move cannot be attributed to the ceasefire alone (12.3).

Case 6. The 2026 US-Israel–Iran war and the Hormuz closure#

This is the course's reference timeline for the 2026 war. M02 · 2.10.4 (the Nifty's return distribution), M10 · 10.11.5 (the oil term structure and Indian fuel retailers) and M11 Case 3 (the Fed and RBI hikes) take their own angles and point here.

Timeline (sources conflict; ranges are given where they do). "EIA spot" is the EIA's daily Brent spot series RBRTED (also FRED DCOILBRENTEU), the primary price record used throughout; futures settlements are as reported by the press, because ICE does not publish a free history.

Date (2026)	Event	Market	Source
27 Feb	Pre-war	EIA spot $71.32; Brent futures ~$72; Nifty 25,178.65	[V] EIA; [S] futures, Nifty
28 Feb	US-Israel strikes on Iran begin		[S] press
2 Mar	IRGC confirms closure of Hormuz (Iran declares it "closed" on 4 Mar; dates differ by source)	EIA spot $77.24; Nifty −1.24%; India VIX +25% to about 17.5	[V] EIA; [S] rest
4 Mar		KOSPI −12%	[S]
11 Mar	IEA coordinated release of 400 mb, the largest in its history; US share 172 mb over ~120 days	EIA spot $90.98, $102.38 on 12 Mar	IEA news release, 11 Mar 2026 (not fetchable on 6 Nov 2026); [V] EIA
18 Mar	Iranian strike on Ras Laffan; Qatari LNG capacity reported −17%, Asian LNG prices about +140%	EIA spot $118.09	[S] press; [V] EIA
Mar	Hormuz flows ~2.7 mb/d (Mar–May) vs ~20 mb/d in 2024	Gold −11.8% in March; US 10y real yield 1.76% (2 Mar) → 2.13% (27 Mar)	[S] flows, as attributed to the IEA; gold: Reuters [S]; [V] FRED DFII10
30 Mar		Nifty March low: close 22,331.40, intraday 22,283.85	[S] Yahoo
31 Mar		Brent futures highest settle about $118 ($118.35 reported); EIA spot $126.69	[S] futures; [V] EIA
2 Apr		Physical Brent: $141.37 dated Brent18 vs EIA spot $127.61 [V]	measures differ
7 Apr		EIA Brent spot 2026 high $138.21	[V] EIA
7–8 Apr	Two-week ceasefire announced (7 Apr US time), effective 8 Apr	Brent futures $109.27 → $94.75 (−13.3%); EIA spot $138.21 → $122.11	[S] futures; [V] EIA
30 Apr	US naval blockade continues	Brent futures intraday about $126 ($126.10 and $126.41 reported)	[S]
13 May	India gold import duty 6% → 15%		CBIC Notifications 15/2026 and 16/2026-Customs (M10 · 10.5.2)
20 May		Rupee record low: 96.82 per dollar (previous record 91.03, Dec 2025)	[V] Federal Reserve H.10 (FRED DEXINUS); M11 · 11.11
17 Jun	Islamabad memorandum (framework)	Brent ~$83 mid-June	[S]
1–2 Jul		Brent futures trough about $71.6; EIA spot low after April $68.53 (2 Jul)	[S] futures; [V] EIA
8 Jul	Ceasefire collapses; US strikes; Iran sanctions waiver revoked	Brent $76.5	[S]
23 Jul		Brent futures rebound to about $100.7	[S]
16 Sep / 7 Oct	Fed and RBI hike 25 bp each		[V] FOMC statement; RBI MPC resolution, 7 Oct 2026 (M11 · 11.7)
23 Oct		Brent futures ~$117.4, highest close since March; EIA spot $128.30	[S] futures; [V] EIA
3–5 Nov	US midterms (Case 7)	EIA spot $107.03 (3 Nov); futures settle $94.62 (4 Nov, −8.7%), about $98.3 (5 Nov)	[V] EIA; [S] futures

On the Brent peak The futures peak is reported as about $118 (highest settlement, 31 Mar) or about $126 (intraday, 30 Apr). Physical prices ran higher, with EIA spot at $138.21 on 7 Apr and dated Brent reported at $141.37 on 2 Apr. Teach it as "about $118–126 in front-month futures, $128–141 in physical crude, depending on measure and date". The gap between physical and futures is itself the lesson: steep backwardation in a physical shortage (M10).

Mechanism

1. Supply. This was the largest disruption to the Hormuz chokepoint in its history. In (12.21), a gross $\phi$ above 15% of world supply, partly buffered by stock releases and bypass pipelines, accounts for a log price rise of order 0.5 ($72 → $118 is a log change of 0.49) with combined elasticities around 0.3. That is consistent with the model, given the uncertainty about elasticities and buffers.
2. Scenario dynamics. Brent's path, $118 → $95 on the ceasefire → $72 by July → $117 by late October → $95 after the midterms, is a sequence of Bayesian updates on a three-branch tree. The ceasefire and its collapse each moved the escalation probability sharply. Each $20–30 swing is the change in $\mathbb E[\text{Brent}]$ from a large likelihood ratio.
3. Gold failed as a haven because the shock was inflationary and central banks responded (M11 · 11.4).
4. India. Every channel in 12.7 was active at once: crude, the rupee at a record low, FPI outflows at a record, and the RBI forced to hike. Diversification across Indian assets did not help.

Case 7. The US midterms, 3 November 2026#

Numbers

• Brent futures settled at $94.62 on 4 Nov, −8.67% from $103.60, then $98.29 (+3.9%) on 5 Nov¹⁹. The EIA spot series had not yet published 4 Nov when checked on 6 Nov (last value $107.03 on 3 Nov).
• Gold: COMEX futures $4,073.0 on 4 Nov (+3.4%), about $4,112 on 5 Nov [S]. Spot quotes showed about +2.6% on 4 Nov [S]. The difference reflects spot versus futures.
• US 10y: 4.95% → 4.90% on 4 Nov²⁰; about 4.84% on 5 Nov [S].
• DXY: 101.87 → 101.51 on 4 Nov (−0.35%) [S].
• Nifty +2.40% (576 points) to 24,536.6 on 5 Nov²¹; Sensex +2.60% to 79,310.01, a six-session winning streak and the Sensex's biggest gain since 8 April²².
• S&P 500: +1.58% on 4 Nov, then −4.36% to 7,353.72 on 5 Nov²³. This large fall is not explained in the sources reviewed. Check it against primary data before building a story on it.

Mechanism Democrats won both houses. Markets read this as raising the probability of a negotiated de-escalation with Iran, a likelihood-ratio update on the de-escalation branch. Through the oil → inflation → rates chain it lowered Brent, US yields and the dollar, and raised gold, which benefits from lower real yields. India, the most oil-sensitive large EM, rallied the most.

The S&P's 5 Nov fall, if confirmed, is a reminder that an index aggregates many channels. A domestic US policy channel (fiscal, regulatory, sector-specific) can dominate the geopolitical one. Attribution needs the cross-section: compare energy, defence and rate-sensitive sectors.